Estimates Debate — Finance

Thank you, Madam Chair, and thank you very much for your guidance on that. I rise as the chair of the Finance and Expenditure Committee to recommend to the House that the appropriations for the year ending 30 June 2023 for Vote Finance be accepted. The Finance and Expenditure Committee also, in our report back, recommends that the House take note of the matters we considered in our examination of the Fiscal Strategy Report 2022 and the Budget Economic and Fiscal Update 2022, also known colloquially as BEFU. I would like to thank Treasury officials for their participation at the hearings, particularly the Vote Analysts, though, from across all the different Votes, for their work in Budget 2022. I would also like to thank the Minister of Finance for his work on what I believe is an excellent and balanced Budget.

As I said in the House last week in relation to the Investment Statement, the Finance and Expenditure Committee met with the Minister of Finance for an hour with the support of the Secretary of the Treasury, Caralee McLiesh, and then we also continued for a further almost two hours to go through the different policy statements and public finance documents which we were required to report back to the House.

So going back to Vote Finance and the appropriations, the appropriations sought in Vote Finance in 2022/2023 totalled $8.366 billion. What the select committee noted was that the funding sought for Vote Finance in this Budget for 2022/2023 is substantially less than the total spent across the Vote in 2021 and 2022. Apparently around $12.603 billion was the estimated actual spending in 2021 and 2022. We were told that the decrease largely reflects the spike in appropriations over the previous two years for COVID-19 - related expenditure and indemnity obligations.

As in previous years, the Crown debt and the superannuation cost were the two biggest appropriations, with total appropriations worth $7.603 billion. Debt servicing is, again, the largest appropriation under Vote Finance, which has been allocated $4.569 billion. And then the second-largest appropriation is the New Zealand super fund.

Now, I just want to spend a little bit of time on the super fund, because when the Government first came in in 2017, they restarted the contributions to the super fund, and I believe this investment is incredibly important because it reflects this Government’s commitment to our superannuitants. So in Vote Finance 2022/2023, the Minister allocated $2.46 billion, which is an increase of $40 billion from the previous fiscal year, and the appropriation has increased substantially in recent years, with an increase of $300 million in 2020/2021, which was after the increase of $660 million in 2019/2020.

Of particular note for the House, Vote Finance no longer funds several initiatives relating to the COVID-19 response. There has been a significant decrease between the money estimated to be spent and the budgeted figure for 2022/2023. I understand, based on the Minister’s comments during the committee debate, that this variance is mostly caused by a one-off Vote Finance initiative in 2021/2022, which was not part of Budget 2022. The committee noted that the three following expenditure items that had decreased in 2020/2023 were $1.11 billion for liabilities arising from the Large Scale Asset Purchase programme and the Business Finance Guarantee Scheme. This scheme is no longer available.

The second decrease was $939 million for grants to the Crown Infrastructure Partners, which is around $817 million, and to Ōtākaro Ltd, $122 to fund shovel-ready infrastructure projects, and $1.602 billion for share subscriptions in Air New Zealand, and $400 million for its standby loan facility. I just want to take an opportunity to thank Ministers for that support for Air New Zealand as the borders have opened up, as many members of this House have had to go overseas to travel for some of our inter-parliamentary obligations. I’m really thankful that the Minister has been able to keep our national carrier going.

So the report is very fulsome from the Finance and Expenditure Committee. I thank all the different members across the House for their contribution to it. I did have one particular question I’d like to leave the Minister of Finance with, and that was in relation to the clusters. If the Minister of Finance would like to just elaborate a little bit more on why they moved to a cluster approach in this year’s Budget. What was the purpose of it and what are some of the benefits that the Minister can see as a result of it? Thank you, Madam Chair.

Madam Chair, thank you very much. And before I start, can I acknowledge the chair of the Finance and Expenditure Committee and all members of the Finance and Expenditure Committee across the House for their good works in finding us to this point in the process and their interesting report that they’ve done.

We’ll come to the question that the member has asked in a moment. Just by way of introduction, when we look at this Budget in total and the fiscal aspects of it that are covered, particularly in the report of this committee, essentially what we were attempting to do with this Budget was cover off three main things. The first of those was around the question of fiscal stabilisation, that obviously we’d had a significant period during COVID-19 where the Government spent large sums of money to support New Zealand businesses and households to deal with the impact of COVID-19. And what this Budget signals over the course of the forecast period is a return in terms of spending as a percentage of GDP to around the long-run average of 3 percent. We have reached up to 35 percent in response to COVID. This is a similar percentage to where the previous Government got to when they were dealing with the global financial crisis, where they reached around 34 percent of GDP. It is the nature of the way Government does its work that the balance sheet gets used in times of crisis like this. But, obviously, attempting to move towards a more stable fiscal position is important. We did that.

Alongside that, we altered the fiscal rules for the Government, and these are articulated within the Budget documentation, in particular, looking to have both a measure of net debt that is more comparable with the rest of the world—and we’ve done that—but also looking to a slightly different approach with a debt ceiling. That is put in place at 30 percent of GDP under the new measure of net debt, 50 percent under the old measure, which is a recognition that the balance sheet can handle going up to that ceiling. It is a ceiling, not a target, but it does provide a little bit more scope in the future for debt to be used in a flexible way as we have done through the COVID period. So fiscal stabilisation has been a really important part of this Budget.

The second area is around the cost of living, and, obviously, people will be aware of the initiatives taken in the Budget on the cost of living, including the cost of living payment but also associated with and around the Budget, the work that we did to defray transport costs, in particular the cost of fuel and the half-price public transport, but also longer-term initiatives. And there was Budget night legislation associated with the removal of covenants that supermarkets put in place and the other initiatives flowing from the Commerce Commission report.

And then thirdly—and this does relate to the question that the member has asked me—is a suite of initiatives that are, essentially, around how we go forward with our economic plan of a high-wage, low-emission economy that provides economic security to all. The Budget has two novel approaches, which I think are just worth reflecting on in this first call that I’ll take. The first of those was the arrival of the Climate Emergency Response Fund—as flagged at Budget 2021, that we would be doing this in Budget 2022. This is the hypothecation, the recycling of the money from the emissions trading scheme into emissions reductions initiatives. It was a significant programme of work; we front-loaded those initiatives to be able to make sure we got on with getting the emissions reductions that we need that are required for us to meet the goals that have been set through the zero carbon Act and through the Independent Climate Commission’s carbon budgets. And so doing that was novel and different. It does involve a number of projects that stretch out over a number of years in the transport area and agriculture and industrial emissions, all of which are very important.

The second end and different approach we took this year was the approach of clusters, one in the justice area and one in the natural resources area, both designed to be able to further the public finance modernisation programme that this Government has had under way. That’s been designed to get the wellbeing approach developed by taking an intergenerational, multi-year approach to funding. So that means that justice Ministers, eight of them, had to come together for a single set of proposals based around a single set of goals and outcomes for that sector, as we did in the natural resources area.

This means multi-year funding. So yes, it does mean drawing on funding from future Budgets, but it is also a requirement that those agencies don’t come back within the three years and it does give them the certainty to be able to plan well. So that was an innovative and novel approach, we tested it out and we will be reviewing those pilots over the coming days.

So within the Estimates that we’ve been dealing with here, I think we as a country can look proudly on the record of New Zealand having got through COVID—there are still challenges to come, but the Budget outlines a good plan to deal with those.

I’m going to constrain myself to Vote Finance, and the narrow debate that we have before us, and I want to use as much of my time as possible for questions for the finance Minister. The context for this Budget is an enormous amount of borrowing and spending by the New Zealand Government. And I say that not just relative to history—we’re all very aware that COVID-19 necessitated a significant fiscal and monetary response—but also relative to the world. New Zealand, relative to countries we like to compare ourselves with, was one of the second-biggest borrowers, relative to the size of our economy. And I note, in these Estimates, that means that the payments we are now making for interest, at $4.6 billion, exceed the funding we put into our primary schools each year. So there is a significant interest bill that taxpayers are paying today, and will be paying into the future.

So we have that debt side. We also have the money-printing that went on at the Reserve Bank. Now, that was one of the fifth-biggest monetary policy responses in the world. So we hit both accelerators hard; we hit the fiscal borrowing and we hit the money-printing hard in a way that there isn’t much precedent for around the world. So my question for the Minister of Finance is about the liabilities for the Crown, resulting from that money-printing. These Estimates show that during 2020 and 2021, $3.1 billion was expensed to the Crown to recognise the liabilities arising from the indemnities that the Minister of Finance signed off for both large-scale asset purchases—that is around $54 billion worth of bond buying, otherwise colloquially explained as “money-printing”—and the Business Finance Guarantee Scheme of $60 million. My question for the Minister of Finance is: did he consider that the interest rate differential could be such that the liabilities to New Zealand taxpayers would get this large, and what does that mean for the Crown accounts?

I thank the member for the question. Just before I come to the question of large-scale asset purchases, in the first part of the member’s comments, she did refer to the finance costs and I just think, while the raw numbers are—I’m not contesting the raw numbers that the member read out—it is very important to see those finance costs in the context of the overall economy. So, if we look at where we were in 2022, we’ve got core Crown finance costs as 0.78 percent of GDP. They are forecast to peak in the forecast period at 1.15 percent of GDP in 2023-24. That is obviously higher than where we’ve been in recent years, but low historically. And, at other times in New Zealand’s history where we have had to borrow money at large rates, for various reasons, we have been paying significantly higher. So I just think that it’s worth acknowledging that, yes, there has been an increase in the cost of financing for the Government but, relatively speaking to the economy, it’s still low and historically is still low.

In terms of the large-scale asset purchases, clearly, the advice—and I know, I think, the member has received this under the Official Information Act—that we received, when the Reserve Bank was proposing to do this and when the indemnity was sought from the Government, was that interest rates wouldn’t rise to where they are today. And I think the member would be hard pressed to have had a crystal ball back then, to have said that interest rates would have risen to the extent that they have. And so, yes, the liability to the Crown is significant—you know, we’re up over the $8 billion mark—but the question the member needs to answer, and indeed anyone else needs to answer is: what’s the counterfactual here? What would have happened had we not done this?

💬 Nicola Willis: Less money printed.

Well, what would have happened had we not—because the member can’t know that—

💬 Nicola Willis: Less inflation.

The member can’t tell me that she would be there—March 2020—knowing exactly where interest rates were going to be in two years’ time. It’s actually not possible, and the argument that the member would have to have undertaken is that she could have said, “You know what, I can cope with interest rates rising, but I think economic activity might come down by this much. I think I’ll let unemployment go up.”—because that would be the member’s other response here, presumably, is that she wouldn’t have worried about where unemployment had got to.

Monetary policy and fiscal policy both had to act in response to the situation that we had, and we did not then have the benefit of the hindsight that we have today. So we made these decisions on a least-regrets policy. The Reserve Bank Governor was very clear that he was working off a least-regrets policy when the bonds were issued, and so, therefore, yes, there is a cost to the taxpayer—absolutely—but the counterfactual of the costs to the New Zealand economy had we not done this cannot be quantified today and, certainly at the time, looked to be significantly worse than the outcome the member is now complaining about.

Did the Minister consider, at the time he signed off on the extraordinary indemnity, the possibility that significant money printing, to the tune of $54 billion, could potentially, through flooding money supply into the New Zealand economy, impact on inflation?

Firstly, any decisions we took around the question of an indemnity were based on the advice that we get. But, in the end, the Minister of Finance is responsible for those decisions. The advice that I received from the Treasury was that an indemnity was justified. The way in which the Reserve Bank’s finances appear on the Government’s balance sheet mean that, in a sense, we’re moving money from one part of the balance sheet to the other, but, obviously, there’s a marginal cost caused by being involved in the secondary bond market. When we did do this, we considered all of the options, both on the positive and the negative side. I repeat what I’ve just said to the member: when we were doing this, we were facing the prospect of double-digit unemployment, we were facing the prospect of economic activity slowing significantly. Had the Reserve Bank, through its monetary policy, or, indeed, the Government, through its fiscal policy, failed to act, and had we seen a much-deeper impact on the New Zealand economy, I’m quite sure that the member would be raising her concerns about that right now.

Ultimately, the decision about how to use the tools for which an indemnity were granted fall to the Reserve Bank, and the Reserve Bank made those decisions. The granting of the indemnity from my part was based on the fact that I wanted to make sure that monetary policy was in a position to play its role. The final decisions about the amount of money and the various impacts that that would have fall to the Reserve Bank.

In light of that answer, in which he points to the Reserve Bank’s responsibility for decision making about the sheer volume of money-printing, and his earlier comment that it is difficult to quantify the counterfactual, why won’t the Minister support an inquiry into the Reserve Bank’s response and whether or not it was appropriately scaled to the challenges in our economy?

This cuts to what I think is the heart of perhaps what’s now emerging as a difference of opinion between the Government and the Opposition, which is that the operation of monetary policy does need to be independent, and I think New Zealand has had enough of a history to know the dangers of diverting from that level of independence. There will no doubt—as I’ve said on numerous occasions—be the opportunity that will come for an inquiry into the broader COVID response, both from the economic perspective but also from the health perspective as well, and the time will be right for that. The time is not right for that in the middle of while we are still dealing with a COVID outbreak in the middle of winter.

When it comes to the question of the way in which the Reserve Bank might consider this, the Reserve Bank has a board. The Reserve Bank operates independently from the Government, and I am not about to undo that consensus, even though the member might have some political mileage that she thinks she can make out of this. There will be the opportunity to do this.

💬 Nicola Willis: Oh, not allowed to ask questions.

There is the opportunity to do this. Well, it’s interesting that the member says that, because I do note that the member has had more than a dozen opportunities over the course of the last two years to question the Reserve Bank Governor, and many opportunities to question me as select committee, as well. So the idea that somehow or other, this approach has had no scrutiny is absolute nonsense. It has had extraordinary amounts of scrutiny.

The member has also noted where New Zealand positions itself. Every central bank in the world had to deal with this issue and every central bank in the world did undertake this kind of quantitative easing, or unconventional monetary policy. That is something that should be recognised in this debate—that, actually, the Reserve Bank of New Zealand, while it had to go earlier and harder than some others may have gone, was part of a global consensus in this regard.

Tēnā koe, Madam Speaker. Tēnā koutou e te Whare. I thank the Minister. I want to focus on how the economic response to COVID-19 and the ongoing inflation pressures have created winners and losers. We’ve seen that those without assets and on the lowest incomes have gone backwards, while those with the most benefited from a huge boom in asset price. Some sectors of the economy, like hospitality and the arts, really struggled through lockdowns and the ongoing pandemic, but other large businesses have taken Government support that was given in the form of wage subsidies, and then we’ve seen them record huge profits, paying out large dividends to shareholders—many of those shareholders might not even be in New Zealand.

So my question, I guess, to the Minister is: given the response that the Government has taken to COVID-19, which saw $18 billion paid out to New Zealand businesses under the wage subsidy scheme, and then, most recently, to respond to inflation pressures, have taken actions like a more than $1 billion cut in petrol tax, fuel excise duty, and road-user charges—at the same time, petro companies posting record profits. In other countries, we’re seeing things like windfall taxes being proposed, particularly for energy companies or oil companies, which have been posting these huge record profits. In other places, it’s called an excess profits tax. I guess I’m wondering is the finance Minister and this Government going to consider how those companies who have benefited or profited from Government support, or from other circumstances that have nothing to do with their business but have enabled them to make excess profit well over and above what would be expected—is there a way that the Government is going to ensure that that excess profit is coming back and is able to help the community here in New Zealand?

💬 Hon Grant Robertson: Madam Chair?

Oh, go ahead.

It’s a little bit hard with a remote sitting to quite tell if the member had finished. In terms of her comments around the wage subsidy scheme, what I would say is that when we established the scheme, obviously it was established quickly in order to achieve the goals of cash flow and confidence for businesses. We tied the wage subsidy scheme to a criteria of employment attachment so that you could only get it if you were continuing to keep your staff. I strongly believe that that approach made sure that New Zealand’s unemployment rate stayed lower than it might otherwise have been. We did not put other criteria on the wage subsidy scheme. So the idea that somehow or other we could ask those companies to give it back with some kind of justification being that things didn’t quite turn out to be quite as bad as we thought, I think would be tremendously bad faith.

A number of companies have made the decision to pay money back when they did achieve profitability, and I welcome that. But I simply don’t believe we’re in a position to ask for that money back, given that that wasn’t the criteria. I also think there is a real risk that had we put further conditions upon people taking the wage subsidy, they would not have taken it and that would have seen more people lose their jobs than was otherwise necessary. And so, at this point in time, I stand by what we did there in terms of the wage subsidy scheme.

The wider point that the member is making is about those companies who have done well through this period of time. And I would like to make the point that it is a wide range of companies. I sometimes think, in this debate, we get a little lost in understanding just who the majority of the New Zealand businesses who benefited from the Government support are. They are, by and large, small and medium enterprises, and I think sometimes we get numbers thrown around about balance sheets that are not accurate. Having said that, there are some large corporates in New Zealand who are doing well. They are contributing significantly more in corporate tax than we have otherwise seen, and the tax returns that we are seeing currently, while some of it is about inflation, it’s also about the fact that our companies are continuing to do well and they are paying their tax, and that is the money that then gets returned to the community, as the member asks.

New Zealand doesn’t have a history of the kind of windfall taxes that you see in other countries around the world. And it’s a little different than, perhaps, the UK, where energy companies can very clearly be said to have that. What we have done, particularly in terms of the petro companies, is, obviously, using the Commerce Commission’s report, we now have passed a law that means we have a lot more information about the margins that are being charged and we are constantly keeping our eye on that to ensure that there aren’t excessive margins. Similarly, in the supermarket sector, using the power of the Commerce Commission in their report, we’ve been able to identify what we believe are excess profits and we’re now moving to change that sector so that New Zealanders do get a fairer deal.

Thank you, Madam Chair. It’s been a very interesting debate. I want to pick up on the Minister’s question. What’s the counterfactual if the Government hadn’t signed a guarantee for the Reserve Bank to print $53 billion, which it ultimately loaned to, guess who, the Government. Well, what that did was it reduced the Government’s cost of borrowing by a full percentage point. Some people think, “A percentage point, that’s not much.” Well, when the Government borrowed $80 billion through the course of COVID, a percent is a lot of money.

The Government has put New Zealand so much further into debt because it has insisted on spending so much more money. It is now spending $127 billion a year; before COVID, $87 billion. And can the Minister ever explain what New Zealanders are getting for an extra $40 billion that they weren’t getting when he was the finance Minister in 2019? I bet he could never explain that. So, on the one hand, “COVID was fabulously managed and COVID’s over now and everything is good.”, on the other hand, it is now costing $40 billion to deliver the same stuff. Arguably, if you talk to people in health or education or any Government service today—at question time, we heard the Defence Force has half of their people thinking of leaving.

Arguably, things have got worse. So what was the counterfactual on the Reserve Bank printing all that money and pushing down the Government’s interest rate? Well, the counterfactual is that the Government would have had to be honest with the New Zealand people and say, “This money that we’re borrowing has real cost to future generations because interest rates will rise and that’s when you’ll see how much it cost.” And people would have seen in the 2020 election quite how much debt this Government was putting New Zealand into and quite what the effect on future generations would be, and we would have had a much more sceptical view of this Government’s handling of COVID if we saw the real cost. But did we see that? No. That’s the counterfactual. What actually happened is that we saw a Government that signed a deal with the Reserve Bank— the Minister says it should be independent—to print $53 billion that was loaned to the Government that reduced the Government’s interest rate. As a result, this Government was able to borrow and spend and pretend that there was no tomorrow.

Except, tomorrow has come—it’s called today. And today, we see rising interest costs: $4 billion or $5 billion a year forecast in these Estimates. Just paying the interest on the debt as those interest rates rise—that’s what the Finance and Expenditure Committee’s report says. We see a tougher and tougher time for families who are now competing for resources with the State sector. That $127 billion sucked up by the Government in this Budget means the Reserve Bank is finally free to raise interest rates, and, as it raises those interest rates and every single person’s mortgage rate—and, if you are renting, you see it through your landlord’s mortgage rate—all of a sudden you see the real costs of this Government’s response.

So what was the counterfactual? An honest Government that didn’t mess with the Reserve Bank, that didn’t mess with interest rates, that faced the real cost, and that was honest with the people. But here’s the other counterfactual: that people would have looked at what this Government was up to and said, “The real cost of this borrowing will go on for generations. The real cost of this borrowing will be inflation. The real cost of this borrowing will show up at the checkout, at the petrol pump, and my rent, and everything else I buy for years to come. And I’m not so sure that Labour’s doing such a good job.” Those are the facts.

Well, I think that there was a better way, and, actually, ACT was saying it consistently in the select committee, to the Reserve Bank Governor, in the House, and in the public, to the media—we were saying, “This borrowing will come back to bite us. We are going to be in trouble because this Government has distorted monetary policy; they’ve lowered the interest rates artificially. And when all of that money sloshing around comes back to bite us, it’ll do it in the form of inflation and rising interest rates.”, as we see now.

So when this finance Minister stands up and says, “Oh, we just had to print $53 billion. We just had to borrow $76 billion.” There was no counterfactual. The counterfactual was some honesty. And the only problem with that scenario is that it would have had political implications for the Labour Party. Well, guess what! They didn’t fix it; they just delayed it, because those implications are coming home to roost. Didn’t we see it as recently as Monday night? Thank you, Madam Chair.

Oh, to live in David Seymour’s fantasy land! The member wants to talk about counterfactuals. Well, here’s a pretty obvious one. The member clearly doesn’t care about people losing their jobs. The member clearly doesn’t care about small-business people, who woke up and said—you know, I’ll give the member an example. I met a gentleman when I was in Featherston during the 2020 election campaign. He was driving a filthy ute—it wasn’t Kieran McAnulty, but it was another member of the Wairarapa community!—and this person turned around, did a U-turn, came and parked beside me, got out of his truck, walked over, shook my hand and said, “Your Government’s policy saved my business”. He told me this story about the fact that he was driving to work to tell the four or five people who worked with him that they didn’t have jobs anymore because people were cancelling their forward orders as they were worried about what COVID would mean. He said, “That wage subsidy meant that I could go in and say to those people, ‘I’m not sure what’s going to happen, but you’ve all got a job’ ”, and 10 weeks—12 weeks—later, when that wage subsidy expired, that person was able to carry their business on. That person was able to employ some more people. So if Mr Seymour wants to know what the counterfactual is, the counterfactual is people who live in the real world, Mr Seymour, people who actually have to employ other people, people who have jobs now, who may not have had them had we not done this.

Now, am I saying that every aspect of the Government’s response is perfect? Of course not. No Government in the world had a playbook for how to deal with this. But isn’t it interesting that Governments around the world made the decision to look after their people, and to look after their citizens? I remember standing in this House in both March 2020 and then again in May 2020, where I stood up and said, “Yes, there are different ways of approaching a crisis like this”. We’ve seen that in New Zealand’s history, and we saw it when those who prefer austerity in these situations, which is, essentially, what Mr Seymour is saying; he doesn’t care whether people lose their jobs, he doesn’t think we need to fund public services properly. That is the counterfactual, that’s the approach—the austerity approach. Now, sure, Mr Seymour can propose that. But what I said that day in March 2020, when we did the first package to respond to COVID, and again when we did the Budget in May 2020, was I was not prepared to run the risk of New Zealanders losing their jobs, losing their homes, people not being able to continue to run their businesses.

Time and time again in this House, I was asked by members in the National Party, albeit not as often by members in the ACT Party, to put more money in, to put more money into the small—you, Mr Seymour, stood in this House and asked me to give more support to businesses in the Auckland area than we had given. The National Party constantly asked us to do that. They put up a package in 2020 that had even more money going in. We got the balance right, in my opinion, on this side of the House, because we did support New Zealanders through this. So, yes, it was an expensive undertaking, but it was an undertaking that fulfilled the values, I think, of New Zealanders, and certainly of the Labour Party, that we will look after people, that we will use the balance sheet to make sure people make it through a crisis. Mr Seymour’s entitled to his view about a different way of doing this, but it’s a different way that I believe would have had an enormous social, human, and financial cost in this country.

The other matter that the member raised again was this question of finance costs. I’m not sure if the member was in the House when I ran through this before. Yes, we are paying more for that. Interest rates have risen significantly. When I look at the advice that’s been released under the Official Information Act at the point of time that we were signing off on this, the worst-case scenario had interest rates, the official cash rate, at 1 percent in 2023. No one was predicting where we are now, then.

💬 David Seymour: Yeah, we were—yeah, we were.

Well, maybe Mr Seymour was perfect, and his crystal ball was perfect. But the point I’m making is, yes, we did have advice about what the downside scenario was, and we did consider that. But we weighed that advice against the impact on people’s actual lives. Not a theoretical exercise, not an ideological exercise; a practical response to making sure that we helped New Zealanders through what was and is the most challenging thing that has been to the New Zealand economy and society in my lifetime, and I’m proud of our response.

Thank you, Madam Chair.

💬 David Seymour: Madam Chair, point of order. You gave three calls in a row to the National Party. As far as I’m aware, in two hours of debate, you’ve given—

CHAIRPERSON (Hon Jacqui Dean): Thank you. The member will resume his seat. I want to thank the member for the point of order. By way of enlightenment for the committee, we have an hour set down, as members will know. I take calls based on the proportionality of the Parliament, the relevance of the questions, the length of time for each intervention, and I’m being extremely careful to follow those tenets in this debate.

Thank you. Well, I think that the response that we’ve just had from the Minister of Finance to David Seymour’s question just shows the simplistic argument that he always runs, which is either it’s all or nothing. And the issue is that, as my colleague pointed out, New Zealand had the second-highest response to COVID in the entire OECD—basically the world. So we have had a Government—and I’m looking at you, the Minister of Finance—which has allowed an incredible amount of money to be pumped into this economy. And my first question is, really—look, with Mr Seymour’s question, it is not that we shouldn’t have done wage support. I’m sure Mr Seymour supported the wage support mechanism. That was a $25 billion package. You were right, Minister: other people, including myself, asked for more support for businesses because we didn’t think it went far enough. There is probably another $10 billion, roughly, I don’t know—take a guess of it—that was good quality spending. But when you look at the totality, there was another $20 billion to $25 billion of absolute crap spending that has delivered no benefit to New Zealand. And that is the issue that we’re raising. It’s not we should have not spent it; the question is we should not have spent all of it. And there are 150 projects we identified that literally have delivered no benefit to New Zealand. So it’s not an all-or-nothing debate; it is a question of quantum, and the Minister is overseeing a huge spend up on, basically, a whole range of wasteful projects.

Now, I want to return to my good colleague’s questions about the large-scale asset purchase (LSAP) programme. I find it an absurd proposition that a Minister claims that the advice that they looked at and must have received from Treasury but took into account and chose not to take into account is that interest rates would not rise over the medium to long term. I think it’s absurd. And he said it would get to 1 percent by 2024. In the case the Reserve Bank was buying back 10-year bonds—up to 10-year bonds—the proposition that interest rates would not rise over the 10-year period is an absurd proposition, and I think shows an absolute naivety of the Government. So my question to the Minister—and I am trying to ask some questions—is: why did you not think longer term, given that 10-year wind-out period? Or did you not require or seek any advice as to what would be the wind-out provision of the Reserve Bank buying all these bonds? First question—and, if so, what was that?

The second one is why didn’t you put some conditions around the LSAP indemnity? Why didn’t you say to the Reserve Bank, “You can do up to $20 billion, but then come back to us?” What conditions did you put around it? My understanding—and we have asked the Reserve Bank countless times—is it seemed like an open-ended indemnity. Maybe the Minister can highlight some of those issues.

Thank you very much, Madam Chair. I will answer the member’s questions, but I just want to reflect on the first half of what Mr Bayly just said and the absolute absurdity.

So we have had a shifting of position, even just within this particular debate, about whether or not what the Government did during COVID-19 was useful. We previously had Nicola Willis saying it’s all terrible; David Seymour saying it’s all terrible; now, we’ve got Andrew Bayly saying, “OK, the $25 billion that you did on business support via the wage subsidy scheme and resurgence support payments, that’s good, but the next lot is not.” Well, I’ll tell you what the next-biggest one after that is, Mr Bayly: the health system. The money that we actually gave to make sure that New Zealanders got vaccinated, to make sure that our health services were ready to be able to deal with that, to be able to make sure that we had the staff that we needed—

💬 Nicola Willis: Don’t have the staff—a thousand short.

—that we had the testing kits that we needed; all of that. Ms Willis can say whatever she likes; Mr Bayly has just called that spending, that saved thousands of New Zealanders lives, “crap”. That’s what Mr Bayly’s just told us all: that spending is “crap”. Well, that’s why we did this in New Zealand: it was so that we could protect people’s lives.

So, yeah, sure, we can debate the merits of some parts of the recovery part of the COVID Response and Recovery Fund. Personally, I think it’s a good thing that we supported our artists to stay in jobs when their work dried up. Now, the Opposition doesn’t think that was a good thing. Well, we can go out and debate that. That, as an amount of money within our total response, is marginal compared to the money we spent on the health system, compared to the money that we spent supporting businesses, and compared to the money through Ministry of Social Development that we spent supporting households so that they could put food on the table and look after their families. That’s the vast bulk of the COVID Response and Recovery Fund, and that’s what Andrew Bayly tells us is “crap”. Well, I could not disagree more with the member on that point.

In terms of the member’s questions around large-scale asset purchases, to answer the second of those questions, the member may not recall, but there were two phases to the programme. The first of those was a dollar figure, but we then moved, in order to create some parameters to this, of the bonds representing up of 50, 30, and 30 percent of the different bond markets that we use. So we said, within a market we’ll set a percent cap than a dollar cap. So that’s how we did put some parameters around it.

💬 Andrew Bayly: A quantum limit?

No, because we set it as a percentage of the bond markets that we were operating in. So there was a cap within that, because that was a much more sensible approach, given that a large part of what we were doing here was trying to induce some market confidence. That’s what the member again forgets, given the time frame we were in: the fact the markets were spooked, and part of what this was about was making sure that the bond markets were able to continue to operate. We have to have good faith to that.

The member is concerned that, in the process, we didn’t take advice about what would have been the impacts. I’ve already told the member that we did take that advice; we considered those downside scenarios and that one of those downside scenarios was that interest rates would rise.

💬 Andrew Bayly: By 2024.

Ha! And, again, I invite the member to take himself back to that time. He can try and claim that he knew that the official cash rate would be where it is now, but, actually, that wasn’t what was being forecast. But, to answer the member’s question, yes, that was considered as part of the advice, and we weighed that up against the enormous economic impact that could come from us not stepping in and allowing the Reserve Bank to go forward with its monetary policy, or, indeed, undertake our fiscal policy.

Members, a couple of minutes ago, the leader of the ACT Party took a point of order which I dealt with. The member then approached the Chair. His behaviour was disorderly, and I require the member to stand, withdraw, and apologise.

I withdraw and apologise. Point of order. Madam Chair, if a member can’t approach the Chair and ask for the reasoning—

The member will resume his seat. I’m going to give the member one warning. The member will not contest the Chair’s ruling.

A simple question: does the Minister appreciate that supporting the independence of the Reserve Bank does not preclude assessing its performance? When he quotes the Reserve Bank’s least-regrets approach, does he, as the Minister of Finance, acknowledge any regret for the massive house-price inflation that resulted from the stimulus, the 32-year highs in consumer price inflation that resulted, and the large impact on families, communities, and, ultimately, the financial stability of the New Zealand economy that resulted, and, if he does not have any regrets at all, does he acknowledge that some people do and a review is warranted?

In answer to first part of the member’s question, the Reserve Bank has a board, and the Reserve Bank board has a responsibility to oversee the operations of the bank. The independence remains important to me. I think that New Zealand has been well served by having an independent central bank.

We did a review of the Reserve Bank of New Zealand Act, and out of that we did make some alterations. That included moving to a monetary policy committee. It included creating a more conventional board structure, and I’m sure that at certain points in the life of the Reserve Bank in the future they may well choose to use that. I’ve already indicated that I have a belief previously—and not just today—that there will be a time when there will be a comprehensive review of the Government’s COVID response. That time will not be when we are still dealing with the outbreak that we’re dealing with now.

In terms of the second part of the member’s questions around questions of regret, we do not get to govern in hindsight, and I know that the Opposition spokesperson is now a disciple of hindsight economics, but, actually, we are not in a position to do that. So, as I said in an earlier contribution, did we get absolutely everything right in our response? Of course we didn’t—no Government in the world did, and, indeed, I’m sure that if the central bank governor was speaking, he would say the same thing about monetary policy.

But I think what we did get right—what we did get right—was that we moved quickly to support New Zealand households and businesses. We moved quickly to fund our health system properly. We entered into a vaccine roll-out programme that was among the most successful in the world, albeit there were problems about the pace that people worried about, but in the end, the outcome of it—the number of people vaccinated—was a success. We moved to make sure that those vulnerable families had money. We supported numerous organisations around New Zealand to make sure that there was food security for our people during this period of time. We made sure that we ran public health programmes that helped people understand what they could do, as well.

So the money that we spent was spent to make sure that New Zealand got through a one-in-100-year health shock and the prospect of a one-in-100-year economic shock. That is a least-regrets policy, and it’s one that I stand by.

Tēnā koe. To the Minister, I really appreciate all of your comments. Of course, I think most of us in this House appreciate the steps the Government took to provide financial security to many people during the COVID-19 pandemic and the investment in the health sector.

The question the Greens are raising is: what systemic changes can be made to our tax system to ensure that those who are profiting or benefiting more from these sorts of interventions are really paying their fair share?

I think there’s several areas that it’s really obvious; it’s easy to make lots of money in New Zealand. We know supermarkets, energy companies, banks, construction supplies, and petrol companies are all areas where there’s an ability to wield huge market power because we are a small market, because we’re far from other markets. And we have a situation of duopolies or oligopolies, which enables super-profits.

So the question is: how do we make our tax system fairer so that when companies are in a position to be able to make these excess profits, enough of that is coming back to the community? I note that the National Party and the ACT Party complain constantly about Government spending, but you never see them complaining about the arguably under-contribution of corporates in this sector.

I guess, following Nicola Willis’ contribution about how the Reserve Bank pumping lots of money into the economy did lead to an inflation in asset prices and house prices, one way that Government could come in and ensure that that doesn’t become a privatisation of what was public policy—a private benefit from public policy—would be through a wealth tax, which the Greens previously proposed and which is very common in other jurisdictions, in other countries that we would compare ourselves to.

So it’s not so much a question of was it right for the Government to step in and spend money; the question is: how do we make sure our tax system is fair so that private individuals or corporates who are operating in sectors where there’s limits to how much competition you can get—how do we make sure the tax system is fair so that more of that excess profit can come back and benefit the community?

Ultimately, it’s not down to things those businesses are doing that has led to their excess profits. It’s not going to discourage investment, if we stop the excess profit; in fact, they’d still be making money. It’s just a higher tax rate on the excess profit, which would enable Government to invest more in public health, to invest more in cost of living payments, to raise incomes from the bottom, which is what we need. It’s a rebalancing of the whole economic system that’s needed, and I want to know what this Labour Government is going to do about it, if anything.

Thanks, Madam Chair. I’m conscious of both the fact that we have relatively little time left, but also that the question that the member has asked—while it’s a good question—is not necessarily directly related to the Estimates that we’re dealing with here.

What I can say that the Government has done, and is covered by what we’re doing here, is address within the sectors that the members raised: supermarkets, the construction sector—the competition aspects of those—the fuel companies. Ones that we’ve dealt with through the Commerce Commission’s inquiries and we are now pursuing regulatory solutions. We did have the legislation, as I mentioned earlier on, when it comes to the covenants on land. So we’re acutely aware of where there are sectors in our economy where I don’t think New Zealand consumers are getting a fair price and where we should be focused on. So we are doing that.

In terms of the tax system itself, I mentioned earlier, obviously, we are seeing a greater corporate tax take. That money comes back in and is redistributed to provide for the services that the member wants.

Beyond that, she’s asking questions which are, essentially, about tax policy, and, obviously, all parties in Parliament will have tax policies that they take to the 2023 election.

Thank you, Madam Chair. I’d like to return to a response to the Minister of Finance that I wished I could have made immediately after his call. He asked, what is the—

💬 Hon Grant Robertson: Point of order, Madam Chair. I regard the comment that the member has just made as challenging the ruling that you made. I did actually witness briefly what occurred up here.

Thank you. The member will withdraw and apologise.

💬 David Seymour: I withdraw and apologise. I’m simply stating that I think—

CHAIRPERSON (Hon Jacqui Dean): No. No. The member will resume his seat.

💬 David Seymour: Point of order. It may be the Minister of Finance’s view, and it may be that he doesn’t want to hear more from me, but you don’t even know what I was going to say.

The member will leave the Chamber.

David Seymour withdrew from the Chamber.

Thank you very much, Madam Chair. I appreciate a little bit of time to go. But I’ve got a question leading off from Nicola Willis’s questions in regards to Labour’s unsustainable deficits and, in effect, a Government living beyond its means.

The interest costs bill for the debt of this Government at the moment is in the region of $2.8 billion, that is slightly more than the entire police budget of $2.45 billion, forecasted by the end of 2025 to be in the region of $4.9 billion, which, for context’s sake, is the same amount that we spend on the entire Vote Health and urban development of $4.6 billion or on the defence budget of $4.9 billion.

My question, Minister, is quite simply: is he concerned that one of the fastest-growing Government spending programmes is the repayment of Government debt? Because I think that is a significant concern, and for those people out in the public, looking and saying, well, look, the more we spend on the repayment of Government debt is less money available to spend on front-line services.

My second question is around the fact that—is the Minister concerned with the fact that the Government repayment of debt is going to be one of the fastest-growing areas of Government spending. The implication on that is a reduction in the ability to be able to spend on front-line services such as teachers, police, and our healthcare workforce.

Lastly, in the interests of time, I want to ask a question in regards to three waters, which is a significant element of Government expenditure. I want to know from the Minister of Finance whether he believes the nearly $3 billion that has been allocated to local government for the three waters “no worse off” funding is good value for money? The context for that is that part or a portion of that payment in Auckland, $127 million, was utilised to repay an operating deficit from a prior period. It didn’t lead to one single metre of water pipe going into the ground in that country, and I’m sure that is probably a joint concern for both of us.

I’ll try and keep it short so that there is a possibility for another contribution.

In terms of deficits, I just would point out to the member that the National Party ran six deficits between 2009 and 2014. We are forecast to run five in response to COVID-19. Our largest deficit was 7.2 percent of GDP in 2020; National’s largest deficit was 8.9 percent of GDP in 2011. Our deficits are forecast to average 3.2 percent of GDP; under National, they averaged 3.6 percent of GDP.

So I do take the point that the member is making that clearly, when we have to respond to a crisis in the way that we do, there is going to be pressure on the Government’s books. The balance sheet is strong enough to manage this. Let’s be really clear: New Zealand’s level of debt is significantly lower than most other countries in the world. The debt-servicing costs, which I’ve already run through twice in the House during this session, are historically very, very low.

When it comes to the second part of the member’s question—around three waters—look, the “no worse off” policy was the subject of discussion with Local Government New Zealand. It was a recognition that there was a change in the status of the assets that were available for local government. We did negotiate that with them. There are rules and requirements around how that money can be spent, but the member is right to recognise how Auckland Council used it—he may not be satisfied with it, but in fairness to Auckland Council, the “no worse off” agreement was one made with Local Government New Zealand as part of the way that we managed three waters process.

I’m going to take another call. Members have to be mindful I have to close the debate off 6.05 p.m. Happy to do that—members, wish to work within that?

Thank you, Madam Chair. I just want to respond to the Minister’s rebuttal of my earlier question. Look, National Party—and this is what a Minister always does, is it’s all or nothing. “We had to spend the money, and everyone, or the Opposition, said, ‘You shouldn’t have to spend any money.’ ”

The second line of defence is saying, “Of course, we would have cut spending on health services and all that sort of stuff.” The Minister knows that National would not have done that; that’s not what I suggested. I did acknowledge that there was some other good spending other than the wage subsidy, but there’s $25 billion that’s unaccountable for and that was my point.

The second point: the proposition that the Minister was in a new environment and quantitative easing and we had no idea that would lead to higher rates of interest, particularly over the course of the bonds—which some are extending out to 10 years—is, again, absurd because many economists knew about this. People like Charles Goodhart and a number of other monetary economists knew about this and were talking about it. And, of course, we have had periods where we’ve had quantitative easing before—actually in the history of the world, Mr Robertson; it wasn’t just a one-off issue.

The question I want to put to the Minister now, though, is that there’s $56 million set aside for the venture capital fund. The understanding I have is that this is going to be a plan: work with banks to provide money to small businesses to try and help those who can’t get access to traditional finance. Why is it when I talk to banking executives, they say, “Well, we don’t know about it; we haven’t agreed to it and don’t really have any intention to do this.”? So it’s just a fascinating thing that there’s a lot of rhetoric about supporting small businesses. The key part is the banks, but the banks don’t seem to know much about it and certainly haven’t agreed to it.

I’m very happy to respond to the member in regard to the Business Growth Fund, which is a little bit more than $56 million; $100 million is the contribution that the Government is planning to make. This based on very similar funds around the world. The UK and Australia are the two models that we’ve looked closely at; the UK one, in particular, has been very successful in ensuring that small businesses can keep going.

It’s not just the funding; the business growth fund in the UK also has linked to it the provision of support, in terms of how to grow a business—so, for example, people being seconded on to the boards or the governing bodies of small businesses, as well as access to patient capital.

The critical involvement of the Government is to crowd in the retail banks. I think I said on Budget day that there was still a bit of work to do with the banks to get them to fully agree and sign up—but it’s completely untrue to claim that they don’t know anything about it. I’ve met and spoken to, I think, the chief executive of every major bank in New Zealand on this subject. The Reserve Bank is doing its work—

💬 Andrew Bayly: Any commitments?

—and there has been a very solid level of commitment to keep talking to us about how this will work. So I did say that there would be more work required but that doesn’t mean that we have to have some completely, fully formed, perfect idea before we even talk about it. It’s an exciting prospect, and I’m sure banks will want to be involved in it.

I’ll also point out to the member that there’s been a significant amount of other support for small businesses, including the Small Business Cashflow Loan Scheme, the work that IRD’s done in terms of supporting people with various taxation requirements, and, obviously, the wage subsidy scheme itself.

Members, the time has come for me to leave the Chair for the dinner break. The House will resume at 7 p.m. Thank you.

Sitting suspended from 6.03 p.m. to 7 p.m.

Environment, and Oceans and Fisheries