Annual Review Debate — Finance

Thank you, Madam Chair, and I must say it is a real pleasure to stand in this somewhat new procedure and after that very lengthy and eloquent introduction. The annual review process, I think, in the Finance and Expenditure Committee went very well. I do think that the various departments and Ministers had a very good opportunity and were thoroughly questioned by members of both the Government party and other parties around the House, as, in fact, the finance sector annual review shows—a compendious document of some 54 pages, which I must say must meet some kind of record for an annual review document. But I think it’s really useful for members of the public to be able to read the reviews of all of those departments and entities together. I do think you can’t really understand, necessarily, for example, the Treasury review unless you’re reading at the same time the Reserve Bank review, because those two things are so closely connected. I did think that those two reviews being heard close together by the same committee was really useful.

Obviously, there was a lot of questioning around the COVID response roll-out, and I would expect Minister Robertson to perhaps address some of those things in the course of this debate. I do think there was a general consensus over the high speed, high trust model which was used by Treasury, particularly around the wage subsidy. Obviously, there’s ongoing post hoc examination of that process, and, given the speed at which things were moving, it did appear that Government generally—Government entities—had to learn new ways of making decisions. Treasury was very forthcoming that it couldn’t fall back on a comprehensive cost-benefit analysis that would take months to complete when things were happening daily and weekly. So the implementation there of that wage subsidy in a matter of weeks, on that high-trust model, along with, I think, the transparency—the fact that the recipients of all of those wage subsidies were available to be seen by all—the media, and this is, of course, an important part of what goes on in Government, scrutinised that information and some entities were, essentially, shamed into fronting up. I think that was a really good aspect of that which came out of annual reviews.

And, of course, the flip side of that and that decision-making process—I think it’s really important always to ask the “what if” question, and I’d invite the Minister to do that: to say, “If we hadn’t done it that way, how would we have done it? What kind of chilling effect would there have been on business activity, and employment in particular?” Of course, we do know that the Government borrowed a large sum of money over the course, and that that borrowing has not yet ended, and that there may be instances—we don’t know what the future holds—where further funds may need to be borrowed to ensure that we have a strong and resilient, well-functioning economy into the future. That, of course, was a focus of discussion, and the Minister may well want to comment on that.

I do note that when we came to discuss the Reserve Bank—and Treasury, to an extent, as well—house prices were a focus. Of course, this Government has a stated objective of sustained moderation in house prices. I note that the annual reviews were held before the Government’s housing announcements, and of course there wasn’t anything in the annual reviews which prefaced that, but it was very clear that the levers there—the demand-side aspects of that were touched on as important; the tax framework was touched on as important. For completion, the Minister may want to fill out that.

I also just want to note the role that the IRD played in the COVID response, as well, and also the fact that their business transformation project that they’ve been undergoing for many years put them in a position where they were able to respond—where they had the technical infrastructure to do that. Having said that, they were challenged on the outcomes of business transformation—whether it was on time, whether it was delivering, whether it was on budget, and also, importantly, the impact on the workforce and how that is being handled, and I think it’s quite appropriate that that happened. But, look, very good annual reviews, ones that the Opposition participated in well. Thank you, Madam Chair.

Thank you very much, Madam Chair. I thank the chair of the Finance and Expenditure Committee, Dr Duncan Webb, for both that fulsome report back and also for the questions he thought I might like to address—and I’ll endeavour to do as much of that as I possibly can.

Obviously, as the member has stated, this is a new process for us all. It’s a little bit different from the other committee stage process we’ve been doing most recently, where it’s the question-and-answer thing; people are able to either do that or give some form of speech—it’s up to them. In this first intervention, I plan to just make a few general comments about where we are in terms of the economy, with respect to the annual review, and, as I say, pick up any questions as they go through the process.

I think the very first thing to say is that when we came to do the annual review debate, we were in possession then of the Half Year Economic and Fiscal Update. And when we took the time to compare that to where the Treasury thought we would be when they produced the pre-election fiscal update, only a matter of three or four months beforehand, the differences were already stark. And that goes to illustrate the point that we are living through an environment of uncertainty and volatility at the moment.

COVID-19 is the most significant economic shock of my lifetime and, indeed, I think, of most other people’s in this House. It is one that has had an enormous impact in every part of the world and in every part of the economy. However, the extent of that impact in New Zealand has been less than was forecast. And that comes down to the hard work of New Zealand businesses and workers, supported by the Government.

The chair of the select committee mentioned the wage subsidy scheme. I do just want to put on record—he was very kind to some Treasury officials who did work very hard in producing the wage subsidy scheme—the appreciation of the Government to, particularly, the staff of the Ministry of Social Development who were the people who made sure that applications were turned around rapidly. I do recall in the election campaign in Featherston—just to mention the electorate of Wairarapa for the benefit of the Government’s senior whip—a person pulling up in a ute, jumping out, coming over to me, shaking my hand, and saying, “You saved my business.” What he actually meant was that the wage subsidy scheme had saved his business, because he had lost all of his orders all in the space of about 24 hours, was looking to lay people off, and was given the confidence and the cash flow to be able to get through. That was the point of the wage subsidy scheme.

This period of time that the annual review covers marks the most extraordinary period for the Government’s finances that I can recall. We were in a position where we needed to borrow a significant amount of money to ensure we protected the lives and livelihoods of New Zealanders, and we did it. I do not resile from that position. There were no costless decisions in COVID-19. The decisions we took were to ensure that we did not have the loss of lives, that we did not have the loss of businesses. We took that decision. And on behalf of taxpayers, we did use the fact that the country had saved for a rainy day. That rainy day arrived, and I’m very proud of what we did.

In the period of time that followed on from that, we were told that we could expect unemployment to get anywhere between 13 percent and 26 percent—at about exactly this time last year, I was being told that. That did not occur. Again, I believe that is, in part, because we moved and acted so swiftly. When I look at other countries around the world, we find ourselves with unemployment at about 4.9 percent, new numbers out this week; Australia, the equivalent, about 5.6 percent; and the OECD average, well over 6 percent. One of the reasons, I believe, for that is because we got our support out quickly. It meant that people didn’t take precipitous decisions, and so that has certainly stood us in good stead.

On the more traditional ratings, ways in which we manage the economy, around GDP, New Zealand certainly experienced a sharp dip that we expected in the June quarter, but then a very, very large rise in the September quarter, and a flattening out in the December quarter. When we look at that overall and compare ourselves quarter to quarter, December 2019 to December 2020, New Zealand’s drop was one of the lowest of the countries that we compare ourselves to—lower than Australia, lower than the US, and lower than the UK.

And on top of all of that, we’ve had external validation of this from the ratings agencies. So we had Standard & Poor’s, who gave New Zealand the first ratings upgrade from the pandemic’s outset, also the first for New Zealand since 2003, up to AA3. And we had Moody’s reinforce New Zealand’s A3 rating, based on the robustness of both our fiscal position and the way in which our public policy position has rolled out.

So in this period of time, I’m very proud of the response that has been undertaken.

Thank you, Madam Chair. Dr Duncan Webb didn’t need to give the Minister of Finance a pat on the back. The Minister did it all by himself. I’m only being partly flippant. I think he does deserve some kudos for his management through a difficult period. But my role isn’t to pat the Minister on the back; it’s to scrutinise his performance and the financial performance of the Crown accounts, which I will do.

I want to quote, firstly, before asking two or three questions of the Minister, from page 11 of the Budget Policy Statement 2021, and I’m going to go back and relate it to 2019-20, which is pretty much where we’re at, although I realise it’s a random walk across two or three years. It says at the top of that page: “We went into COVID-19 in a strong position, with net core Crown debt below 20% of GDP and running surpluses.” Well, it left three words out of that sentence, because it was “and running surpluses into the ground”.

Now, the Minister mentions the Half Year Economic and Fiscal Update (HYEFU), and I’m going to mention two. The first one is HYEFU 2016, which projected an out-year financial total Crown operating balance before gains and losses for 2020 to be $6.8 billion, and for 2021, $8.5 billion. Now, by December 2019, well before the effects of COVID, we were projecting for 2020 a loss—no surplus of $6.8 billion, but a loss of $0.9 billion; a nearly $8 billion turnaround in financial performance under this Government—and projecting in the following year a skittish $0.1 billion surplus, compared with what the previous Government was forecasting of $8.5 billion. That’s a $15 billion turnaround projected in two financial years that had nothing to do with COVID. Now, my question to the Minister is: is my mathematics correct, because they are directly out of the documents that he himself has just quoted?

Now, the second question, and my analysis of the quality of the spending—yes, to the Minister, we needed to spend a lot of money to keep the economy going, and the National Party supported that. But I want to look at both the quantity and the visibility and the transparency of the spending around COVID.

So, firstly, in respect of transparency, what we have been trying to do is clearly identify the spending that was related to COVID and that resulted from the pandemic from the structural spending that has been simultaneously incurred by this Government. I’m talking about jobseeker support increases. I’m talking about winter energy payments and a number of things that are not necessarily COVID-related, or at least certainly not time-bound, because the things that we’ve got to spend on matters to do with, for example, COVID testing, border controls, wage subsidies, of course—they’re all time-bound. Much of the spending that we have seen incurred by this Government, as evidenced by HYEFU and the Budget Policy Statement, is locked in in perpetuity. We’ve been trying to distinguish between the two and we can’t, and I think, from a transparency perspective, that’s really important. I’d like the Minister to comment on how we are able to discern the quantity of the Government’s spending.

Thirdly, I want to talk about the quality of the Government’s spending, because the Auditor-General was very critical, I think, of—gently critical—understanding the context of the amount of spending related to COVID as part of COVID recovery and response: $50 billion allocated. It was a slush fund—that’s understood—but—

💬 Hon Grant Robertson: Ha!

Well, it was. The Minister didn’t have it appropriated to various votes. He had a great big bucket of money and he asked the Parliament to come to this place and he came here and said, “Trust us. We’ll do the right thing.”, and Parliament said, “Yeah, OK.” It was a slush fund, and now we know that the Auditor-General has been quite critical of the quality of the analysis about the value for money on that.

Now, I accept that last year, there was a time when that was a problem. But the Office of the Auditor-General basically said that they were “unable to readily … determine how much expenditure the Government has even decided to approve for the Covid-19 response”. They said, “It is difficult, if not impossible, to get from [existing reporting] an overall picture of how much … funding has been allocated and how much has been incurred on various initiatives to date. … There is a public interest in information that lets people see how public money is being spent.”, and the Minister, on behalf of the Prime Minister, in this House on 11 February said that he was working with Treasury on how to respond to the Auditor-General’s comments. I think it would be really helpful if we could get an update of progress on that matter.

Thank you, Madam Chair, and I appreciate, actually, the opportunity, for the latter of the member’s two questions, to respond and talk through what we are doing in that space. Just to ensure, though, for the first part of his comments: on 29 February 2020, which was the most up-to-date set of Government financial statements that we had to prior to COVID—that was the statements for the eight months to that date—we had net core Crown debt at 19.2 percent of GDP, and we had the operating balance before gains and losses showing a surplus of $1.4 billion. So I do just want to indicate to the member that we were, as a country, in a strong position going into COVID-19. I am on the record as having said a number of times that we can look back over successive Governments to credit people for the way in which we were disciplined in our spending, the way in which we managed to keep New Zealand’s accounts in such a way that we were able to respond, but I just think it’s important to have that most up-to-date data.

In terms of the member’s second question, I do think this is a really interesting area of debate, and one where we’re very happily working with the Auditor-General on this. The issue that the Auditor-General is, essentially, raising is one about the way in which the Public Finance Act (PFA) works in terms of expenditure by Government agencies. So the annual review debate, of which we are now part, is the opportunity for Parliament to work its way through the expenditure of each Government agency via its appropriation or appropriations. That is where you get down into the detailed analysis of a particular programme or a particular project. That is exactly the system created by our Public Finance Act—arguably the system that the Auditor-General has oversight of as well. What Treasury does is get the aggregate of the spending of those Government agencies and work out whether they are spending against the appropriation at the correct level. They do not play the role, or have not, certainly in the way in which the Public Finance Act is set up, of going through project by project. That is, quite simply, what was set up when the Public Finance Act was passed in 1989. So Treasury’s job is not the one that the member is asking it to perform.

Having said that, when we have such a significant amount of money—$50 billion being spent—in a time of crisis, where there’s a great deal of urgency, where imperfect information is available, it is, I do believe, incumbent on us as a Government to be able to do more than we are required to do under the PFA. But I want to make absolutely clear, in response to the comments made by the member, that the Auditor-General has not expressed concern about where the money was appropriated properly or expressed concern about whether the Public Finance Act obligations have been met. Far from it, in fact; they have concluded and agreed that that is right. But what we have been doing is working with Treasury to source more information from individual Government agencies so that we are in a stronger position to be able to say how much of the money that has been allocated has actually been spent outside of the normal financial review process. The issue the member is partly frustrated by here is, of course, that the financial review process goes for financial years, and so it stops at 30 June 2020, when, in fact, a large amount of the expenditure is now in the financial year which we will review at a later date in this House.

All of this goes to point out that the process here is the one that we have under law. We’re now working with the Auditor-General about what additional information can be provided, and Treasury will be seeking to publish that additional information in the very near future.

Tēnā koe, Madam Chair, thank you. Tēnā koutou e te Whare. I just wanted to raise a couple of issues. I thank the Minister for his speech and presentation, and acknowledge the members of the Finance and Expenditure Committee.

I’m interested in a couple of issues that were brought up in the reviews and which no doubt have already slightly been canvassed by other members of the House, and will no doubt be further canvassed. One is around levels of Government debt and the approach to investment. So, obviously, there’s been a strong focus on keeping levels of debt low or “prudent”, although prudent is variable depending on your perspective. What I wanted to call to the attention of the House is that there’s been quite a change in the mainstream economic orthodoxy between the 1980s and 90s—when was perhaps when some of these people last studied economics—and now, where we have the International Monetary Fund (IMF), the president of the European Central Bank, and the chief Treasurer of the United States, Janet Yellen, all of them showing particular leadership calling for more progressive taxation, more Government spending on health, education, climate change, and public infrastructure. So that’s the new US Treasury Secretary, Janet Yellen, who was former governor of the Reserve Bank; the IMF managing director, Kristalina Georgieva; and European Central Bank President and former head of the OECD, Christine Lagarde. So there’s clearly been a very different perspective on what is good for economies and it is no longer the perspective that corporate tax cuts, low taxes for the wealthy, low levels of Government spending on core public services is a good thing—it’s actually a bad thing. I invite members of the National Party to come into the 21st century when it comes to the economy. The challenges of climate change, a global pandemic, increasing inequality, all require us to rethink some of that economic orthodoxy.

My question for the Minister is, firstly: is he concerned that there is a risk that we’re overly focused on reducing debt in Government spending at a time when we actually should be borrowing and investing in critical infrastructure and services? My second question—and this comes a bit to the Public Finance Act and some of the international standards of accounting—is: does he see there to be any potential risk with some of the conventions around standards of accounting where, in an economic sense, there’s really no difference between capital expenditure and operating expenditure, but in an accounting sense, they are treated differently? However, international accounting standards were really designed and developed for private organisations and the way that they account for their fiscal position, which is quite different to a national Government and a national economy.

One of my concerns is that we have a separate approach, where we have a capital allowance and an operating allowance, and it doesn’t allow us necessarily to invest in the services which are operating expenses, which would actually create more jobs and more value for the economy and for the benefit of the New Zealand public. Yet we can quite easily justify concrete, tarmac, or a building, which has its own depreciation, and does create jobs but not in such a direct sense as, say, employing early childhood educators would. We can do the economic analysis that says that the return on investment for early childhood education is far higher than return on investment for a road, but somehow—are the Government’s hands tied, is there something that the Government is looking at that would allow us to better invest in people? Because that does bring real economic value to New Zealand.

I’m very conscious of the fact that the Labour Party does have limited time here as well, so I’m not going to be able to respond to every single statement that’s made by a member. But I do think the member Julie Anne Genter, who’s just resumed her seat, is raising some very interesting issues around public finances. We don’t get many opportunities to talk about the detail of the Public Finance Act, much to my chagrin; we should be talking about it more often.

I would like to respond to the points that the member has made, firstly, around the amount of money that we do allocate to services like health and education and the importance of us investing in those in a way that supports not only our long-term economic goals but the broader wellbeing goals that we’ve got. I very strongly support that. That’s the reason why this Government, over its successive Budgets, has increased our spending in that area, and has devoted more time to it.

It’s actually what lies behind the wellbeing approach, which is to say that more narrow measures of economic success are not necessarily going to deliver the overall outcomes that society wants. So, therefore, it’s important to have all of those matters considered within what we’re doing. It’s not that we don’t focus on the importance of generating wealth and prosperity, but we care about what happens with that, how it’s shared, how communities are strengthened by it, and what it does to the environment.

So I say to the member, yes, I absolutely get that. I’ve had two opportunities to talk to Janet Yellen in the last few weeks. I’m particularly interested in, for example, her proposals around supporting the OECD’s—around corporate taxation. That’s been a long-term project at the OECD that has not progressed—

💬 Andrew Bayly: Are you going to put it up?

—and having the US behind it is an exciting development. For the members who are starting to interject on my left, it’s interesting to note that the United States is now going to have the same corporate tax rate as New Zealand, which is an interesting development, isn’t it, Mr Bayly. So I think that’s a really interesting area for us to continue to pursue.

On the second point that the member made around the future of the Public Finance Act, I would say this: the Public Finance Act has given New Zealand a number of very useful things. One of those is the transparency that it gives us around what happens in our accounting, subject to the points that we were discussing before. The other is that it does impose some disciplines upon Governments, and I do think that is useful.

What we can do in any given situation, though, is react to it. So, for example, the Government’s long-term fiscal objective is to stabilise debt and then begin to reduce it from the middle of the 2020s onwards, as financial conditions permit. We have to acknowledge that we are in a period of time in which we do need to be spending more. We do need to be borrowing more in order to do that. So the Act does give us that level of flexibility.

Where I think the member has a very good point is around the way in which we think about, for example, capital expenditure. One of my frustrations on becoming the Minister of Finance was the fact that because we are using those public accounting standards, the moment that we decided, for example, to invest in some aeroplanes for the Defence Force, which I recall some discussions with the member about that in the past—even though we were not actually incurring that expenditure for two or three or four years, the moment we made the decision, that then took up that year’s capital allowance. That was not a particularly useful approach. So we invented multi-year capital allowances that are four-year allowances that give us a lot more scope to be able to look at the way that we invest.

The member is correct to say that the definitions of capital and operating expenditure for a Government are not as delineated as they might be in some other areas. And one of the defining elements of what is capital expenditure is in fact that the Government continues to hold and own that asset, essentially in perpetuity. I get what the member is saying as to whether or not that is actually an adequate definition of what capital expenditure is.

We are in the process of a reform programme for the Public Finance Act. I would love to talk a little bit more about what that looks like and I’ll have the opportunity to do that when we bring legislation before the House in the future.

Thank you, Madam Chair, and hello to the Minister of Finance. I’d just like to ask about the part of the report that refers to the Guardians of New Zealand Superannuation divesting from Israeli banks. It reports on a decision that the New Zealand Superannuation Fund would not invest in Israeli banks on the basis that they were somehow subsidising settlements in the Middle East. Now, I represent the Epsom electorate. We have a lot of Jewish people—probably the largest Jewish community of any electorate in New Zealand—and it’s puzzling for them to see that this is a country where Air New Zealand fixes turbines for the Saudis; where, as it turns out, we have multiple exports of, at best, dual-use technologies, frequently signed off by the New Zealand Government, to all sorts of nasty people; and where, as we know, we have 28 percent of New Zealand’s exports going to a country governed by the Communist Party of China, a Government that is part of much focus in current diplomacy, and perhaps a debate from this House.

Now, people might ask why it is that the Guardians of New Zealand Superannuation have seen so fit, in a world filled with conflict, to pick on Israeli banks because they’re entangled in one of the most long-running and complex conflicts in the world—which, by the way, they didn’t choose. I think that people in the Epsom electorate, and actually people in the Jewish community up and down New Zealand, and, indeed, many New Zealanders, would like to know what the Minister of the Crown thinks about the guardians choosing to make that divestment when there are so many others that arguably the New Zealand Government should be making.

More generally, I would ask the Minister, what is the plan for COVID recovery in terms of scrutiny of Government finances? The report is very clear that during the COVID period there was such will to get cash out the door that there just wasn’t time to scrutinise the quality of spending of taxpayer money. And we don’t entirely begrudge the Government of that. Some aspects of the response were supported by all parties in this House, and actually were done very well, or at least as well as could be done under the circumstances, such as the wage subsidy scheme. That’s all very well—some of it, at least—but the real question is, what is the Government’s commitment to returning to cost-benefit analysis and getting sound value for money now that we’re back to business as usual? Will the Government and will the Minister of Finance draw a line under that COVID period and say he is back to committing to sound cost-benefit analysis and quality of the expenditure of taxpayer money? That is something I think New Zealanders would want to hear from him, and perhaps beyond him saying of course he would like to do it, he could explain what steps he’s taken since we’ve got out of lockdowns—we hope—in order to restore proper cost-benefit analysis to spending taxpayer money, as was abandoned during the depths of the COVID period.

Finally, as the report notes, a large amount of debt has been taken on—a stupendous amount. People will use different figures. I notice the Minister yesterday used IMF figures, which show a very kind view of New Zealand’s debt to GDP ratio. I think the correct figures to use are the forecast of where we will be at the end of this forecast period, and that is much higher—close to 50 percent of GDP. Now, the Minister, in his speech, has said, “Doesn’t matter. Interest rates are low; debt servicing costs have actually got lower, in spite of”—he’s wrinkling his nose. This is from his speech he gave yesterday. The Minister said, “Don’t worry about debt; interest rates are low. We’re actually paying less to service debt than we were previously.” Now, if the Minister wants to get up and say he is worried about debt, perhaps he’d like to tell the committee and the public what sort of commitments he has as Minister of Finance to reduce debt. What is his plan for debt reduction?

It can’t be enough just to say, “Oh, well, interest rates are low”, because, as many commentators are saying, you know, United States Treasury bond rates have flicked up; inflation appears to be rearing its head again. So long as we have conventional monetary policy responses, that means that interest rates are going to rise, the cost of debt servicing is going to rise, and the borrowing that happened through the COVID period will have serious impacts on future generations. That is something I am sure people would like to hear from the Minister about.

In the interest of time, I will keep this brief. In terms of the first point that the member raised around the decision by the Guardians of New Zealand Superannuation to make any divestment and, in particular, the question of the divestment from the Israeli banks, that is their decision. It is an independent, operational decision; it is not my place to have an opinion about that, in my role as the Minister of Finance. In fact, that member would be the first person who would be on his feet criticising the Government if the Government interfered in an investment decision of the super fund. I could actually see David Seymour. I can picture him getting up and saying to me, “There he is, interfering in an operational decision! What does that member know about investments that the New Zealand super fund should make?” So that member might just like to reflect on that.

I, along with everybody else in this House, have a great deal, I think, of admiration for the way in which the New Zealand Superannuation Fund has managed that money on behalf of New Zealanders. But the Act that the Government has, then, means that I do not have a role in those individual investments, and I did not have a role in any way, shape, or form in the divestment decision that they made.

On the second point that the member raised, around the quality of spending, we just addressed this matter at some length with Mr Woodhouse earlier. I reject the premise of the member’s question around whether or not we actually did put in place good quality controls around how we were doing that spending. Yes, we moved swiftly. Everything was appropriated. Everything is going back through the annual review process. We continue through the Budget process to have a rigorous analysis process. It’s broader than the traditional cost-benefit analysis process the member might prefer, but it’s one that provides us with confidence about the quality of the spending that we do. We continue that and we will continue that into the future.

On the third point, around the question of debt, I invite the member to take another look at the International Monetary Fund (IMF) numbers that I used in the speech this morning. We use those because they are the comparable numbers. We, around the world, have slightly different definitions of debt, net core Crown debt, and so on. The IMF have their definition, so, therefore, it is one we can use that is comparable. And, actually, it does look out until the end of the forecast period.

Of course, as I said in the speech this morning, it is our plan to reduce debt, but we are not going to do that in the way the member would prefer, which would be austerity measures that would undermine the recovery that we’ve had, that would undermine the public services that New Zealanders rely upon. So, yes, we will take a balanced approach that sees debt come down, but, clearly, when you have a one-in-100-year shock, we had to borrow the money that we did to support New Zealanders through it. It has left the health of New Zealanders and the health of our economy in a much stronger position, and over time that debt will reduce. But we’re not going to do it in a way that compromises the wellbeing of our people.

Thank you, Madam Chair. First of all, I just want to pick up on the first point the Minister of Finance made, and talk very saltily about how good our GDP growth was. I’d just remind the Minister that our GDP growth was actually minus 2.9 percent for the year to December 2020. That compares with Australia which is 2.5 percent, and then that compares with Ireland that was 2.5 percent. So we’re actually nearly 5 percent off the best in the world, and we actually currently sit at 13th in the OECD in terms of OECD performance. Which means that I’m not so sure that that is a wonderful outcome, because every other country in the world suffered the issue of COVID.

I just want to pick up on this issue around debt, and more concerning the ongoing deficits that this country is going to run. It’s interesting that every time this issue is raised—and I just heard how the Minister responded to my ACT colleague, that it’s fine that we spend the money during the COVID lockdown up to now and for the last 12 months—and I don’t think many people would disagree with most of the elements of that spending—but right now, we’re in a situation where the game has changed. The Minister has highlighted to us all through his patsy questions today in the House, from the chair of the Finance and Expenditure Committee, how wonderful the economy is going right now, and I’m sure he will take every opportunity to portray himself as the saviour of New Zealand. If that is the case, the issue, then, becomes how do we bring our costs and also our debt down, over time?

So as my good colleague here, Michael Woodhouse, noted before, the Auditor-General does have concerns and he was quite public, and we did question him at the last Finance and Expenditure Committee meeting about the quality of the spend, but more importantly, what value it is delivering and how that is reported. His principal concern was the lack of transparency. I think that one of the biggest issues we’ve got right now is COVID is an excuse for everything. COVID is an excuse that we can spend money like billy-o and continue to spend it without the transparency that New Zealanders require. And certainly we’ve been trying to disaggregate the figures between how much has been spent on COVID-related issues and how much is baked in from the higher levels of Government spend, often referred to as fiscal drag, which is increases and costs of Government servants, all that sort of stuff: the 10,000 extra Government servants that we have at the moment—those types of examples.

So to the question around the operating deficits. We’re projected, under the current arrangements, to be $85 billion total combined deficits, which we won’t clear until 2027. Are we going to see a reduction of those? I hope we will, Minister, because if the economy is that strong, the first question is: how do you stop those losses going forward, as a Government? If we were a private household or if we were a business, a bank would have put us under.

The other thing about it is you say you want to stabilise debt. The first opportunity to find some savings—and you commented in your speech today that you found a billion dollars’ worth of savings. Rather than say we are going to not spend the extra $10 billion we’ve got sitting in a—using my honourable colleague’s term—slush fund, and rather than spend it, and you talked about spending it this morning, why don’t you save it? Because, at the moment, every day we borrow $110 million. We borrowed $110 million yesterday and we’re borrowing $110 million tomorrow. So the issue is, at what stage do you stop spending and calling it COVID-related expenditure? Because as we heard today, that situation is—and you will continue to crow and I will continue to pick you up on this. If it’s as good as you say it is, you do not need to be running deficits.

I’d have to ask you about a couple of the programmes that you put in place during the lockdown. The first was the Business Finance Guarantee Scheme. It had a budget of a half a billion for it. The very day that you introduced it, the British Government—which is where you replicated its scheme; you nicked it from the UK government—you were announcing it in this House and the UK Government was actually eliminating it as a strategy, because they knew it was a waste of time. That scheme is still open until 30 June 2021. Why don’t you stop that scheme?

The other one, of course, is the very large Small Business Cashflow (Loan) Scheme. That runs until 31 December 2023. Now, I understand where businesses need to be supported, like tourism. Why don’t you start to focus you money into areas and industries that really need our help, rather than just keep blowing it on wide-ranging initiatives? Let’s focus on businesses that are really in trouble.

Madam Chair, just before I provide the Minister with a question, I’d just like to take this moment to acknowledge the passing of Brian Corban, the chair of KiwiRail, who, in your capacity as infrastructure Minister, I know you will have had a considerable amount to do with him. In my role as chair of the Transport and Infrastructure Committee, he was before us this year. So the House should acknowledge that passing.

Minister, I’d just like to ask—we’ve sat through the House and we’ve heard honourable members across there building a picture of an economy in some sort of peril, to the extent that, I think, Mr Bayly used the words “the bank would put us under.” The question I’d like to ask is: how does this reconcile with the views of the rating agencies, who, presumably, are using and looking at the same set of facts as are available to those members opposite, and certainly available to you? So my question is: how would you reconcile those differences in attitudes and findings?

Just before I answer the member’s question and, indeed, pick up some of Mr Bayly’s comments, I do want to take the opportunity he’s offered to reflect on the extraordinary contribution of Brian Corban to public life in New Zealand. He’s chaired a number of the major State-owned enterprises and entities that we have seen, including Radio New Zealand, for an example, and most recently in KiwiRail. Brian was an absolute gentleman, someone I’m sure people on both sides of the House have had a lot of contact with, and we greatly mourn his passing most recently.

In terms of the questions that the members asked, I mean, “I do find it difficult to reconcile” is the short answer to the member’s question, because one of the reasons we tend to look at these external bodies, like Standard and Poor’s, like Moody’s, like the Fitch Ratings agencies, is that they are objective. They don’t have any particular axe to grind one way or the other when it comes to what’s happening in the economy. And what they have seen is a picture of a country that, like all countries around the world, is being tested by COVID-19. And what they have said is that our systems of Government, the robustness of our finances, the robustness of our policies, stands up to that. And while, like any Government in the world, they will look and they will find areas where we could improve, or things that we could do that we might want to change, overall their assessment is that this country—and I want to be careful to stress this, as I did in my opening contribution. This is a tribute to the businesses and workers of New Zealand. That’s who got us through this in COVID. They were supported by a Government that acted swiftly and decisively, but it is a tribute to those people, and we are very proud of all New Zealanders in the role that they played. So from our perspective, the economy is doing well.

What I think—and this brings together Mr Bayly and Mr O’Connor’s comments and questions. What I think we’ve got to be aware of is we are performing better—far better, in fact—against forecast. But bear in mind that the forecast was a very, very dark situation for New Zealand. And so we’ve got to be a little bit careful about making sure that we’re aware that we’re coming back from there. We’re still not back to where we were and we won’t be for some time. Also, the volatility of the COVID-19 situation does go on, Mr Bayly. COVID’s not finished, and we only need to watch the news every single night to see that. Nor is the economic impact of COVID yet finished as countries around the world, the Government support starts to come off, and that’s places like the UK where they’ve kept their equivalent of wage subsidy, the furlough scheme, going and going and going. As those supports do inevitably start to dissipate in countries around the world, that will have a flow-on effect on the global economy, let alone the uncertainty of the immediate health impacts. So COVID is not over.

In terms of the last comment that the member made around the business finance guarantee scheme and the Small Business Cashflow (Loan) Scheme, I think it’s a reasonably extraordinary idea that, having written up a contract with the trading banks of New Zealand, I’d just walk in and tear it up and say it’s all over. I don’t think that’s a particularly good way to run our relationship with those banks. As it happens, the business finance guarantee scheme, as we have talked about in this House before, didn’t perform in the way that we had hoped at the beginning. I don’t think the settings were quite right. So we went back and we changed those settings. That’s what a Government that responds and listens does, particularly when you’re acting swiftly in a crisis. What we’ve seen in this calendar year, in 2021, a little outside of the period that we’re covering in the annual review here, is actually that the uptake of that scheme has increased significantly as businesses, having come out from the immediate impacts of the level 4, level 3 shutdowns in New Zealand have now been more prepared to borrow, more prepared to take on debt, and banks—particularly a couple of the banks—have really pushed out into that market and done that lending, and I think that’s a good thing because it helps those businesses continue to thrive.

In terms of the Small Business Cashflow (Loan) Scheme and the extension of that, I have to say that on that score, bear in mind, they’re loans. So, while albeit at a discounted interest rate, they’re still loans. Those small businesses are the very businesses that, unfortunately, find it harder to get access to capital, to be able to get banks to take on their innovations, their new ideas. So, actually, that scheme’s been a roaring success. Right around New Zealand we’ve seen businesses, particularly those microbusinesses, able to take up that financing, and I think that’s done a lot of good for keeping people in employment and keeping those businesses going.

Thank you, Madam Chair. I just wanted to take a moment to acknowledge Brian Corban and I also just—I wasn’t going to do this, but my mother passed away on the weekend, so just for a little moment, I’d just like to acknowledge her.

So just continuing on with that debate with the business guarantee scheme, Minister, I’d say to you that the reason why it failed and the British actually pulled out of it—because people don’t really understand the reason why, and I think you’ve been a little bit careful with what you’ve said—is that the scheme requires the bank to put the business into receivership, and whilst there is an 80 percent guarantee from the Government, the bank has to make the running. So no bank wants to be seen to be putting companies into receivership, and that’s why the scheme failed in the UK and that’s why you’ve had an incredibly low take-up in New Zealand, because banks have been naturally very cautious in terms of wanting to be putting companies under, which is exactly the point.

The issue around the cash-flow scheme—Minister, again, I’d just say to you: it goes until 2023. I think the issue that we are facing as a nation is that we have got through most of it, and I accept what you’re saying, we need to be prepared for an ongoing issue with COVID, but principally the economy is going pretty well. I would urge you, as the Minister, to be thinking about how you target money now towards those sectors and industries that really need it. We’ve got places down the West Coast who are going to see people leaving those places because they haven’t got a job. That will mean there won’t be volunteers who will want to volunteer for fire brigades or anything like that. That is the essential thing. The reason I highlight this—and also Queenstown; Rotorua, which I was in just very recently, who are really suffering; those are areas and places that I urge you to start thinking about how you do that.

The reason I am raising this is that Australia, for instance, has taken quite a defining view: they stopped most of their schemes at the end of March. New Zealand is unusual, given that they were very similar to Australia—island nation and their economies and trade are relatively on the same level, even keel—and yet they have taken the decision to stop, re-pause, and then redirect; you haven’t taken that. That is why I’m concerned about the level of the continued operating spend that we are going to see coming through.

The other issue I just wanted to touch on, in your capacity as Minister for Infrastructure, is the question around the delivery of that. I note, slightly with some alarm, that you are going to set up this unit within the Department of Prime Minister and Cabinet, and I hope that this is going to lead to a better outcome than what has been achieved to date, and we’re all well aware of a lack of delivery of many projects in Government, but particularly the infrastructure spend.

I note that back in July last year, you announced, to great fanfare, $5 billion worth of infrastructure, a mixture of shovel-ready projects and also the Primary Growth Partnership projects. Already, we’ve had a scaling down of those jobs—they are significant. My question is: where have the billion dollars’ worth of savings come from? Have they come because you are not delivering the infrastructure projects? Or have they come from other projects or other initiatives? Because if it is not coming from the infrastructure delivery, that is really a difficult issue and a bad issue that the Government should have actually been doing over the last 12 months, but hasn’t.

I have to question, now, with the construction agency so flat out and busy, whether, in fact, the original intent, actually, now has passed—the timing has passed—and whether, in fact, you should be looking at different measures. Again, I’m suggesting you need to be much more targeted.

The last thing I want to touch on is off-balance-sheet funding. So the Housing New Zealand subsidiary of Kāinga Ora has a $7 billion off-balance-sheet funding arrangement; I know it hasn’t spent all of it. It would be very interesting to see what extent it has taken that off-balance-sheet funding, and also the situation with the New Zealand Transport Agency—again, a large infrastructure provider. Because we know and we’ve heard today that a number of those projects may be delayed—whilst there seems to have been a commitment that they’ll still be on the table; I sincerely hope they do continue. But if they are being delayed, then it would be useful to understand what level of off-balance-sheet funding you are looking at and whether, in fact, you are going to increase that over time and certainly in the next Budget.

Madam Chair. So, at the Finance and Expenditure Committee, throughout these annual review processes we heard from—as has been well-elucidated by other speakers—the likes of the Reserve Bank and the Treasury, and the Minister himself. For those who are at home paying attention to this debate in the Chamber today, it makes a bit of sense to outline the difference between monetary and fiscal policy. So monetary policy is the stuff that the central bank does in New Zealand, that is the Reserve Bank of New Zealand, and when it comes to fiscal policy that is, of course, the responsibility of the Government of the day.

Now, all of this is important when we consider the annual review of 2020, because COVID-19 delivered us an annual review that was like no other. As the Minister himself has recognised, it is a one-in-100-year kind of event. I want to recognise, as in fact was put on the table throughout that annual review process with the Treasury and the Minister, that the Government here did intervene, the Government here did a number of things that we were told for so long by subsequent Governments were impossible, economically or politically or otherwise, in the form of housing the homeless or providing flexible working arrangements for parents or people with disabilities, offering a rent freeze, and also the likes of the wage subsidy. You also saw the Reserve Bank of New Zealand fulfilling its mandate, as outlined in legislation, to ensure financial sustainability and that secondary function—which was put into law by virtue of changes made by the last term of this Labour-led Government with the support of the Greens and, then at that point in time, New Zealand First—for maximum sustainable employment.

I put it to the Governor of the Reserve Bank, Adrian Orr, whether he thought that he had achieved—and the Reserve Bank of New Zealand had achieved—those two aims. He outlined that they had. I then put to him that, whilst going about achieving those aims by virtue of a policy known as unconventional monetary policy—that is, to wash the market with as much cheap lending as possible—that had unintentionally led to an exacerbation of inequality. At the point in time that we were having these annual reviews, we had Official Information Act documents coming in from the likes of Stuff’s Thomas Coughlan, which demonstrated that, in fact, this is something that the Reserve Bank and the Treasury was well aware could exacerbate wealth inequality, and particularly in this country. Nowhere, perhaps, is that more prevalent than in the housing crisis. In fact, as we ended up seeing played out throughout 2020, house prices increased by 25 percent.

I guess the question that I have for the Minister—noting that subsequent to these annual reviews we have started to see some forms of intervention being announced, most notably the suite of tax changes. But in the context of wealth inequality in Aotearoa New Zealand, that sees the top 10 percent of this country owning 59 percent of the wealth and the bottom half owning just 2 percent of the wealth—and how we know that that wealth inequality can serve to compound itself, but we have the added context that 2/3rds of wealth in this country is held in housing. We have now Labour Government Ministers, formerly Opposition MPs on the record saying things such as, and I quote or paraphrase, that our economy was at that point in time—they saw, “A housing transaction with a few other bits tacked on the side”. I ask the Minister whether there is any envisioned other forms of fiscal policy intervention that he sees as necessary to ensure that we move away from this continued entrenching and exacerbation of wealth inequality in this country.

Again, I want to acknowledge that there has been some movement on this, but as the Minister, I’m sure, will be aware of—and his colleagues that I know are familiar with the works of the likes of Thomas Piketty, the French economist—there is still so much to do. In terms of the rhetoric, to build back better, is the Minister not only considering, obviously, building those great projects but also contemplating how we can have greater distribution of wealth, and particularly the wealth that is produced in this country?

I wish to raise the issue of unappropriated expenditure—in fact, unlawful expenditure; in the words of the Auditor-General, the role of the New Zealand Treasury and Ministers’ attitudes to using taxpayer funds without the authority of Parliament—and in doing so I want to note that the matter I am speaking about relates to expenditure that occurred this year, but I am raising it in this debate at the direction of the Speaker, who said that this was the appropriate forum in which to raise these matters.

My issue is one which I want to use the words of the Auditor-General, to make it very clear to members and those listening that this is not me as an Opposition MP reaching a conclusion; this is the conclusion of the Office of the Auditor-General of New Zealand. What the Auditor-General has said about the $29.9 million payment for land at Ihumātao, which the Government made this year, was that the ministry did not seek the correct approvals; that the expenditure was incurred without appropriation, without authority to use imprest supply; and that for those reasons the payment is unlawful until validated by Parliament.

I want to go back to the time line that led to this, because I think there are some important questions which the Minister of Finance should address. What we know is that on 14 December last year, the Treasury advised the Minister explicitly that they believed it would not be appropriate to use the Land for Housing Programme appropriation to resolve the dispute at Ihumātao. Their words were incredibly clear. They said that they believed that they couldn’t recommend that because there was a risk that it would not fit within the appropriation scope, that the proposal was at odds with the intent of the Land for Housing Programme, its operating model, and scope of related appropriations.

But despite that warning from the Treasury—which could not have been clearer—on 20 December, the Minister of Finance, together with the Minister of Housing, announced to the New Zealand public that they would be signing a cheque to buy the land at Ihumātao. They were explicit. They said they would be using the Land for Housing Programme to write that cheque. So my first question to the Minister is: why did he allow the New Zealand public to be misled about this when the Treasury had already been very clear the week prior that that would not be an appropriate use of those funds?

The next step in the time line is that on 3 February, officials—and we only know this because the Auditor-General investigated this and has put these facts on the public record. I want to be very clear that at no stage has the Minister brought these facts to the House proactively; we had to wait for the Auditor-General to investigate. But on 3 February, officials advised that the only way that Ministers would be allowed to sign that cheque was if they created a new and specific appropriation for Ihumātao. On 9 February, Ministers agreed to this.

Now, this is important because the conceit that the Minister of Finance had with the New Zealand public and that he had maintained throughout was that the land at Ihumātao, the purchase of it, was nothing special. It was just buying land for housing, much as the Government did with KiwiBuild—that no additional funds would be used, that no precedent was being set, that there was nothing particular about this. What this time line shows us is that that was demonstrably false and that the Minister knew it, because his officials had advised him that he would have to sign off on a specific new appropriation. And my question is: at the point of signing off on that specific new appropriation, why didn’t the Minister, or the Minister of Housing, come clean with the New Zealand public about that?

We then know that what occurred was that there were major errors from the New Zealand Treasury, because when Ministers go and sign cheques on behalf of the New Zealand public, there are actually legal processes which require them to get imprest supply from the Parliament. In this case, approval was not sought, and that is what the Auditor-General lays out. But despite Treasury speaking to the Auditor-General about this on 12 March, here in this Parliament, on 17 March, the Minister of Housing, Minister Woods, maintained the fiction that the Land for Housing Programme would be used for Ihumātao, even though she knew a specific new appropriation had had to be created.

We have since been told by TVNZ that Ministers have alerted them that this has been rectified as part of the March appropriations. My question to the Minister is: what exactly has happened and what was meant by that? Was it his office or Minister Woods’ office who advised Maiki Sherman of that, and would we expect in future that the Government will continue to use unappropriated and unlawful expenditure in the way they did at Ihumātao?

Just before I respond to Nicola Willis’ questions there, I just want to acknowledge the contribution by Chlöe Swarbrick and I do think that I don’t have enough time today to go into all of the issues that she’s raised. But, clearly, on this side of the House, the future of the New Zealand economy has to be one that is based on sustainability, on productivity improvements, on inclusion, and not on speculation in the housing market and not on requiring the population to simply grow in order to do that as well. We understand that. That’s a long-term transition for the economy, and that reduction of inequality is very significant and important to us.

Also, for Mr Bayly, again, not really enough time to go into it, but the question of moving towards more targeted spending is clearly where all countries in the world are going. I understand the point he’s making. We actually withdrew our equivalent of the main Australian support with the wage subsidy scheme at an equivalent time. We have other schemes, like the Small Business Cashflow (Loan) Scheme, that had carried on, where we see a greater and longer-term benefit there beyond COVID. But I actually think the relative withdrawal of support is quite similar. In terms of targeting the industries, Minister Nash has already outlined in the speech he gave earlier in the year the way in which we’re going to continue to support the tourism industry. We do the same with international education. We understand the importance of that.

In response to the comments from Nicola Willis, I do think it’s very important to understand what the Auditor-General said, and I too am quoting from the Auditor-General, in his letter to Nicola Willis. I quote: “To summarise, the concern that you raised (that the Government unlawfully used the KiwiBuild Housing appropriation to authorise the land purchase) did not eventuate.” So that actually was what the Auditor-General said—that that concern did not eventuate. The concern that the Auditor-General had, and that the member has moved on to, is the question of whether or not, in the decision and in the creation of the appropriation that took place on the time line that the member has outlined, two important clauses from the Ministry of Housing and Urban Development were put in place that would acknowledge that imprest supply would be the source of that funding. The Ministry of Housing and Urban Development failed to put those two clauses in the paper, and so for the period of time from 17 February, when that was signed off, until 17 March, when the normal regular March baseline update was done, there was an unappropriated expenditure.

As we say, far from ideal—far from ideal, but not uncommon. Seventy-one times in the last five years of the previous National Government—71 times. So, yes, there was a technical fault there—we accept that—as there were 71 times under the previous National Government in its final five years. In fact, this is so common, we have a whole process for it that goes through Parliament where we validate that particular expenditure. The Government—

💬 Nicola Willis: Dodgy deal, sneaking it through.

Ha! Well, only dodgy, Nicola Willis, if 71 times it was dodgy when the National Party did it.

What I can say about the overall traction at Ihumātao is that the Government did make a pragmatic decision in the best interests of all New Zealanders to find a resolution and a solution there. It will involve housing. It will—[A member stumbles] Mr Goldsmith, nice to see you. It will involve housing, but it will be done in a way that is sensitive to the mana whenua, that understands the importance of the area to the people of Auckland. It is a challenging and difficult issue, but it’s one that I believe the Government is on the right path on.

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