Budget Debate 
Budget Debate 
[Volume:663;Page:11213] 
Budget Debate 
Debate resumed from 20 May on the Appropriation (2010/11 Estimates) Bill. 
Hon GERRY BROWNLEE (Minister for Economic Development) 
: 
 I rise to speak in support of the Appropriation (2010/11 Estimates) Bill in what is commonly known as the Budget debate and to oppose the amendment proposed by the Hon Phil Goff. That amendment is an utter joke and it tells the public that the Labour Party has absolutely no sense of where public thinking lies. It is an amendment that clearly shows a party stuck in what it believed to be the best style of governance during the 9 years in which it squandered opportunities to move this country forward. I find it offensive that no one on the other side of the House has had the temerity to stand up and say “We wrote that amendment prior to hearing the Budget delivered and we now realise that we were completely wrong and want to withdraw it.” 
I find it amazing that a Budget that delivers a very very low tax rate to three-quarters of all workers in this country can be described as a Budget that lacks vision and that raises taxes for working New Zealanders. That is quite untrue and I would like the members on the other side of the House to tell us how they would respond to the simple facts that I will offer to the House. Firstly let us take an average family on a $76000 income a year with two kids and a mortgage who are receiving Working for Families. After the tax cuts and after the GST rise and with the Working for Families increase that family will be $25 a week better off. I would like Labour members to go to that family and tell them that the Budget is bad for them. Let us take the average earner who is on $50000 a year and renting a place to live and who is saving towards a first home. After tax cuts and the GST rise that earner will be $16 a week better off. Why does the Labour Opposition not go to the people who are in that category and tell them that they are worse off? Let us take a retired couple receiving New Zealand Superannuation who own their own home and have no other income—which is the case for the vast majority of superannuitants in this country—so they rely entirely on their superannuation payments to get by. After the tax cuts the GST rise and the increase in their superannuation to compensate for that rise they will be $11 a week better off. Why do Labour Opposition members continue to insist that they are not better off when patently they are. 
We will hear this afternoon no doubt Labour members saying that all of the value of the tax cuts and the adjustments made to all of those State benefits and superannuation will in fact leave people worse off or— 
The ASSISTANT SPEAKER (Eric Roy) 
: I am sorry to interrupt the member but there are very clearly defined rules about visual aids. They are to be used only while a member is speaking and by that person. So those charts on the Labour front bench will be put down please. 
Hon GERRY BROWNLEE 
: I was hoping that the cameras would catch a glimpse of those charts and the context in which they appear and that people would compare them with the genuine information contained in the Budget documents to prove that David Cunliffe the poor fellow is somewhat lacking in his ability to analyse these matters as well as being quite out of step with what New Zealanders are feeling about these matters. 
Hon David Cunliffe 
: Treasury numbers. 
Hon GERRY BROWNLEE 
: He yells across the House “Treasury numbers.” and it may well be that he has used some numbers to bodgie up those particular graphs. But the reality is that he is not Treasury despite the fact that he has got one of the biggest intellects in the world and he does not have the same capacity to impart that information to New Zealanders. I have no doubt that Mr Cunliffe will try to mount a case stating that after all these changes have come into effect—increases in State benefits Working for Families and superannuation and more income in the pockets of New Zealanders by virtue of tax cuts—we will have inflation that will rip it all away from them. 
A couple of points about that are worth noting. Firstly yes there has been a one-quarter spike in inflation but the underlying inflation figure is still running at around 3 percent. I would like Mr Cunliffe to say why he was not worried about workers superannuitants beneficiaries and families who relied on Working for Families payments when he left office with an inflation rate of 5.1 percent. It seems that it is another case of it being OK when Labour does it but not being OK when anyone else does it. The point in this case though is that no one else is doing it—the high inflation records lie entirely with the previous Government of that member. 
One might expect that in a Budget like this where there are such large tax cuts—the largest in 25 years—a number of trade-offs might see other spending start to fall. But that is not the case. When one goes through this Budget one can see that there is an increase in funding for housing a massive increase in funding for health services—an extra $512 million over the next 12 months—and very large increases in the education portfolio with an extra $417 million in just the next 12 months. There is funding for infrastructure with a total spending programme over a 5-year period from now of $7.5 billion. There is also the huge commitment that the Government has made to science innovation and technology in working with business to grow opportunities for this country and a very very sizable $243 million support for business research. That is not some sort of pie-in-the-sky “maybe” figure like the one that was being touted by the previous Labour Government for about 3 years prior to putting it in a Budget but never funding it. National’s increase in funding is real it is available it will be taken up and it will make a difference. 
Hon David Cunliffe 
: It’s less than half what Labour had. 
Hon GERRY BROWNLEE 
: The member over there says it is less than half of what Labour promised. The problem is that having promised it Labour never delivered it. Those members had 9 years but they never delivered it. National’s has taken just 18 months and here it is on the table and available. It is real and it is for businesses to work with. 
Another feature of the Budget is the Government’s ongoing commitment to taking out of the public sector the spending that is of pretty low value. A huge effort has been made across the public sector to remove that lower-priority spending—about $1.8 billion of it. To quantify that I tell members that it is about 1800 Saturday-night Lotto prizes. It is a huge amount of money which was formerly spent on what can be described only as low-priority spending. 
All Budgets have in them particular features but normally they reach out to only a small sector of the community. This Budget is one that has reached out across the board. One of the most impressive things about this Budget is the way in which the business community has embraced it and that will mean more investment and more jobs. The significant number of additional jobs calculated in this Budget—170000 extra jobs predicted—will come to pass. 
When it comes to the issue of a fairer tax system some of the write-offs that were available to people who owned second properties or commercial properties have gone. There was no loss in value on a usual annual basis that they were able to claim. The Budget has been embraced by that sector. There are newspaper reports today that landlords throughout New Zealand are saying that this is a good Budget that will not have an adverse effect on the rental housing market. 
This is a Budget that can be described as delivering on National’s promise to reduce taxation for New Zealanders to ensure that there is genuine reward for work that is done. It sets the scene for real incomes in the pocket to grow over a number of years. I think that the Minister of Finance the Hon Bill English should be congratulated on this Budget. I hope that Mr Cunliffe his opposing shadow spokesperson—and I will say his name again because not many people know it: Mr Cunliffe—might come into the House this afternoon and withdraw the amendment to the motion moved by the Hon Bill English because that amendment is out of date it does not mean anything and it most certainly misses the mark as far as most New Zealanders are concerned. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I wish to second the amendment moved by the Hon Phil Goff on behalf of one of your constituents Mr Assistant Speaker Roy—Mr Henry Lindsay of Southland who is an 84-year-old. His family has emailed me. Unfortunately he has kidney cancer and heart failure. He used to receive a couple of hours of home help a week—that is until the Government cut it. We have received a second email from his son telling us that unfortunately Mr Lindsay has been admitted to hospital suffering from exhaustion and that he is still there. If the Minister of Finance cares to tote it up the $700 a day that Mr Lindsay is now costing the taxpayer would have covered his home help for probably the rest of his natural life. The case of Henry Lindsay of Southland is just a taste of what people will suffer in the future because of this Government. 
I turn now to “scene 2”. I was in a Noel Leeming store in Newmarket last weekend which was the first weekend after the Budget. Signs were up everywhere saying “Beat the GST rise. Buy your flat-screen TV today.” If this Government thinks that New Zealanders will suddenly save and enhance the national wealth because of the baubles and beads in this Budget it has another think coming. There will be a roaring trade in flat-screen TVs all over Newmarket while the Mr Lindsays of this world struggle to get the care they need. 
When the Budget hype lifts and the hangover sets in ordinary Kiwis will know the truth—that they have been sold a pup. This is not a step-change Budget a step-forward Budget or even a small-step Budget. It is not a step-up; it is a set-up. It is a set-up because it is the sucker punch of the real blow that is yet to come. It is not an economic Budget; it is a political Budget. It is a Budget that is designed to try to do one thing which is to get the National Party elected next year so that the real privatisations—and Bill English said what he thought about that on Friday last—and the real cuts can come in the second term. Let us hope that New Zealanders join together and stop that from happening. 
Today I will ask three quick questions about what the Budget means for the ordinary Kiwi for the country and for the future. What does the Budget mean for the ordinary Kiwi? National has made it tougher for Kiwis to get ahead—to get better jobs and higher incomes. National has dashed the hopes of ordinary New Zealanders at the checkout counter. 
Early in my time as an MP I was door-knocking in a place in New Lynn called Northall Road and I met a young mum who was on the domestic purposes benefit. She had three young boys who were about the age of my own kids and she had just come back from the doctor. The youngest one was calcium deficient and as I talked to her she cried because she could not afford milk to feed her boys. She could afford milk powder but not milk so she cried. 
She would have done better under Labour in the 9 years that followed. She would have been able to use the training incentive allowance to get a job when the kids were old enough but she has probably lost that job now in the wave of unemployment that has grown since the change of Government. One thing is for sure: she will not be better off following this Budget and I will tell members why. My colleague Parekura Horomia is now holding up a bar graph of gross income for an average-wage earner. These figures are based on Budget numbers. When we put in the Budget document’s inflation rate the average-wage earner after his or her tax cut will not break even until 2014—two elections away. 
When my colleague holds up the second graph he will show what happens to minimum-wage earners under this Budget. They just break even after tax by 2014 but the average-wage earner does not even do that. That is why 75 to 80 percent of Maori and over 80 percent of Pasifika people will be worse off after this Budget. Ordinary New Zealanders will be worse off after this Budget. Henry Lindsay of Southland will be worse off after this Budget. 
But let us not put it in terms of fancy graphs and statistics; let us talk about others who will be worse off. Anybody with a child who has been benefiting from 20 hours’ free early childhood education is at risk of paying up to $31 extra a week for that child to be in childcare. 
Paul Quinn 
: Outstanding Budget. 
Hon DAVID CUNLIFFE 
: Oh “Outstanding” he says. The learning of our youngest New Zealanders is impeded but only if their parents cannot afford to pay. 
Hon Trevor Mallard 
: Paul Quinn said that. 
Hon DAVID CUNLIFFE 
: Paul Quinn said that and  
Hansard 
 will show that Paul Quinn said “Outstanding” to ordinary Kiwis paying $31 a week for early childhood education. 
What about the tenants in the Housing New Zealand flats in Rata Street in New Lynn where some genius forgot to put an extractor fan in the bathrooms so that the flats are covered in mould rot and rising damp all winter? They desperately needed part of the money that was there for improvements and refurbishments in the State housing estate—the hundred million - odd that has been slashed out of this Budget. Those New Zealanders will not be better off. Those State housing tenants will have to live with the asthma and respiratory diseases that occur as a result of that rising damp. 
If the Budget is not good for ordinary Kiwis is it at least justified by some overwhelming result for the nation as a whole? The answer sadly is no. By the Minister’s own admission there will be no reduction in the widening gap between rich and poor. How could it be that a millionaire—a person who earns a million dollars a year—gets back $1000 a week in tax? Fifteen percent of the total tax refund goes to the top 1 percent of earners. One-third goes to the top 5 percent. Shame! They are not the people who have had to tough it out through the recession. They are not the people who have done it tough and have tried to meet the grocery bill at the checkout counter—and those people will be disappointed when they still cannot meet the bill at the checkout counter every year from now until 2014. 
Is there a great growth impact to make up for that social inequity? The answer is no. On the Budget’s own figures it takes over 7 years to scrape up an extra 1 percent of growth. It takes over 7 years to accumulate 1 percent—actually not even 1 percent—of extra growth. This Government promised a step change to catch up with Australia. It needed 2 percent a year and what does it have? It has less than one-seventh of 1 percent each year over the next decade. It is pathetic. But of course the Government is pulling the wrong levers. Nobody on this side of the House would have put their faith in trickle down. Supply-side economics was dead and buried after Ronald Reagan. 
In terms of employment—and this is important—fewer than 10000 jobs are forecast while unemployment widens by 60000 and the Government creates less than half the jobs that Labour created in its term of office. This Budget is delivering only 3 percent of the total growth in employment. The rest would have happened anyway. The best the Government could do was 3 percent. 
The external account more than doubles—from 3 percent of GDP to 7 percent of GDP—because of this Budget. We are not paying our way in the world. We are not exporting enough. We are not saving enough. We are not innovating enough. This was the Government’s big chance to turn the boat round and it failed. Total national debt approaches 100 percent for the first time in our history. To be fair to Bill English he had the courage to say that it was our biggest single vulnerability and I agree with him on that. But what did he do in response? He made it worse by borrowing an extra $1.1 billion to give $1000 a week to someone earning a million dollars a year. 
Carol Beaumont 
: Ridiculous. 
Hon DAVID CUNLIFFE 
: It is ridiculous. He called it the biggest single vulnerability and he broke his promise to be revenue-neutral on his tax package therefore making that promise worse. 
This Budget is not good for ordinary New Zealanders and it is not good for the country. So why do it? That is the big question. Well here is the rub. Here is the sucker punch I say to New Zealanders. This is the hoodwink to make them think they are better off so they will vote for this lot one more time. Mr English has let the cat out of the bag. Kiwibank is the first of many State assets to go. We will see savage cuts in spending the privatisation of assets and New Zealanders will regret the day they entrusted these people with national office. 
GARETH HUGHES (Green) 
: 
 Kia ora Mr Assistant Speaker. I want to look at one part of the Budget in particular. When it comes to transport this Budget is a gambler’s Budget. The Government’s cards are now on the table and they show that we do not have a Minister of Transport; we have a “Minister for Motorways” a “Minister for Trucking” and a “Minister for Corporate Welfare”. The Key-led Government is betting billions on uneconomic motorways that lock us into a future that is dependent on cars and oil. Like a gambling addict this Government fools itself into thinking it does not have a problem—“Just one more win and then I can finally quit.” “Just one more motorway then we can relieve congestion and finally stop building them.” But one motorway leads to another then another until we are building motorways to solve the problems caused by the other motorways. 
This Budget announces $714 million on new State highway construction on top of the billions already announced for the roads of national significance. This massive amount gambles away our national wealth in some sort of 1950s fantasy the major beneficiaries of which will be the trucking lobby. Like a gambling addict most of the money goes directly into feeding the addiction. From Government funds for every dollar spent on sustainable modes of transport like buses trains walking and cycling National is spending $7 on roads. Why would the Government place all of our bets on roads as a measure to reduce congestion when all the local and international experience shows it just does not work? 
Steven Joyce’s big gamble is simple economic mismanagement. The recent OECD report referenced in the national infrastructure plan showed there is no evidence of a positive relationship in New Zealand between motorways and macroeconomic growth but a strong positive link between growth and investment in rail. Research from the United States shows that the economic stimulus spending of public transport created twice as many jobs per dollar as spent on motorways. To look at but one example the Government is planning to pour $1.7 billion of our national wealth on the Puhoi to Wellsford holiday highway. This “road of National Party significance” has a benefit-cost ratio of only 0.8 percent which means the Government is not even staking on an economic return from it. This is coupled with the possible closure of the main trunk rail line north of Auckland which will see more trucks on Northland’s roads and State Highway 1. The agenda is clear: this is a road of trucking significance. Like gamblers who borrow from friends and make hollow promises about paying them back the Minister has even managed to convince finance Minister Bill English to give him massive amounts of cash for his politically based mega-monuments. 
This Budget is not allocating resources according to a rigorous assessment of the economic benefits but rather according to a misguided belief that building expensive infrastructure for high-carbon land-hungry job-poor imported cars and trucks is somehow good for the economy. 
As with many addicts often it is those who live the closest who get hurt like the 205 Waterview residents who will now have their homes bowled and paved for State Highway 16. Also there are the job opportunities we have missed out on in general at Woburn and Hillside in particular and the $547 million we are spending in Auckland on health costs from the extra one billion kilometres travelled by car in Auckland over the last 5 years. This Budget invests $250 million for KiwiRail’s turn-round plan which is a start towards addressing 15 years of infrastructure neglect. But coupled with likely line closures increased fares for public transport users and increased costs for local bodies this Budget is still a Budget for and by the roading lobby and it comes at the expense of local communities and the resilience of our transport network. 
What will the legacy of this Budget be for transport issues? Mr Joyce’s big bet locks us into a model of car dependence that makes our roads less safe makes our communities less walkable and reduces choices for people to get around. Under this Budget our cities will continue to sprawl outwards with more suburban big boxes. Unlike Europeans Kiwis will keep paying more of their incomes on commuting and will spend more of their days stuck behind cars and stuck on our congested motorways. New Zealand will keep borrowing $250 million a week to pay the bills on our oil imports which last year were $5.7 billion. That is a significant cause of our current account deficit. 
Like betting against the casino this Budget takes a punt that the price of oil will stay stable and affordable but on both counts the odds are stacked against us. It is like gambling to pay off gambling debts and it is high time we stopped using the same ideas that got us into this mess to get us out of it. 
The first step to health is acknowledging that there is a problem—a motorway addiction. The next step is seeking help. Luckily the Greens are there for the Government with real options and new solutions. The Greens are not anti-car or anti-roads; we are pro - transport choice. The Greens believe in sustainable smart transport investments that balance roads with sustainable transport options in order to deliver jobs safety and livable towns and cities. The Minister could read the Auckland Regional Council’s regional land transport strategy for some inspiration for next year’s Budget. 
The biggest loss of this Budget is the opportunity cost. Mr Joyce could have surprised us all with his leadership and vision and he could have earned himself a place in history as the Minister of Transport who started Auckland’s central business district rail loop which is the single most effective thing that he could do to get Auckland moving. He could have announced Wellington’s urban light rail system paid for by the funds scrapped from Transmission Gully. Most important Mr Joyce could have taken the opportunity to announce a fundamental overhaul of our transport planning in New Zealand that would balance funding between roads and other transport modes. This Budget could have announced the shift to corridors of national significance. For around $100 million he could have linked the main trunk railway line with Northport near Whangarei and saved more than $1 billion and taken trucks off our congested roads. 
We have heard this Government loudly trumpet that it is spending more than Julius Vogel did on roads. However Vogel looked to the future in his investment decisions. We could be doing that too. We could be investing in integrated transport options in fast modern public transport—bus rapid transit light rail and underground rail in our biggest city—in walking and cycling and in telecommuting and flexible working hour solutions. This Government however looks to the 1950s. It is as if Vogel would be borrowing to build bullock tracks. 
I look forward to the day when we have a Minister of Transport who is a transport choice champion who has an inspiring vision for how livable our towns and cities could be and who is prepared to lead. I welcome the chance to be on record today because it provides a stark contrast to the deficit of vision espoused in this Budget. Kia ora. 
Hon PAULA BENNETT (Minister for Social Development and Employment) 
: 
 There is a buzz in the air; New Zealanders are excited. They see an opportunity for themselves and they are simply saying: “Thank you Bill English. Thank you John Key.” This Budget delivers to New Zealanders. This Budget delivers hope. It delivers opportunity. It makes us see a future that is full of opportunity for our children for our young people and for the people who are here now. It is exciting. It is really exciting to see a country that can move ahead and develop those sorts of opportunities. Economic growth matters and it matters most to those I work with in the social sector. It matters most to those who are at the vulnerable and hard end of some of the choices made. I am so proud to stand up and say that it is the only way that we can lift incomes create opportunity create permanent jobs and build the kind of country that young people not only need but also simply deserve. 
We have steered our way through the worst of the recession. We have steered our way through some of the toughest times. The social services that have held on to that money have made sure there has been opportunity for the people who have needed it. We have been able to shorten waiting times within Work and Income. We have been able to stand up and create opportunities for our young people ranging from Limited Service Volunteers to Job Ops and Community Max. 
This is a great time to talk about Job Ops and about exactly what it is doing for our young people. We have stepped up. At the weekend when I read the papers that come to me I saw there were 5649 jobs via Job Ops at the moment; more than 5000 of them have been filled. Those young people throughout New Zealand are in jobs at the moment. Of those young people who have finished their Job Ops placements 86 percent have stayed off a benefit. That is pretty remarkable. This Government is pumping in more places. We are saying that we can put up another 6000 places and I am optimistic that those places will be picked up quickly by our business community. We feel energy in the air and we feel that bit of optimism in the business community. Members of the business community are excited to see taxation coming down from 30 percent to 28 percent for companies. I think that business people are ready to step up and to say that with a bit of a hand from the Government they will take on young people and give them an employment opportunity. There are 6000 more places for Job Ops in this Budget—$26.7 million extra funding is going there. 
I am responsible for those who are on benefits and for those on the superannuation we pay out. There has been a key focus on making sure that those people are treated fairly through the taxation changes. We have stepped up and in this package we have $159 million more going into compensation for the increase in GST—$2.2 billion will be going in over the next 4 years. That will cover the main benefits. It will cover the obvious ones that we can think of such as the unemployment benefit the domestic purposes benefit the sickness benefit and invalids benefit but it will also go into the student allowance the veterans pension and Working for Families. It will provide payments equivalent to just over that 2 percent as members would have seen. To give a bit of an example I tell members that someone on the domestic purposes benefit will receive $9.79 in GST compensation. 
I will give a further example because this Budget is good news for those on benefits. We are hearing about how we can help those people who are on benefits at the moment and how these measures will create real opportunities for them. Someone on the domestic purposes benefit for example who works 15 hours a week is already better off because we are raising the abatement this year. At the moment those on the domestic purposes benefit can earn $80 but are taxed quite highly on earnings after that so we are raising that threshold to $100. The $80 threshold was not good enough for this Government because we really do want to create opportunities and the right incentives for people to be getting into part-time work. So we have raised the second abatement level. People on that benefit are already substantially better off; they can earn $100 before their benefit is abated. They will also get an extra $5.62 in GST compensation which is on top of the extra $14 a week they will be getting from the abatement. 
As well someone who is working 15 hours a week at $20 an hour will pay $10.50 less because of personal tax cuts. This measure has not been picked up on widely yet but the secondary tax level coming down is really exciting. It is a great opportunity for people to see the benefits of abatements and of the secondary tax rate coming down so significantly from 21 percent to 17.5 percent and then to see the way they can get a bit more money in their own pockets. So it is good news good news and good news again for those who need it most. 
In particular members know that I always go on the side of those who are on the domestic purposes benefit with their children; I personally want to see them supported the most. We have the single biggest spend on teen parents ever seen in a Budget—the single biggest spend on teen parents ever seen in a Budget. The National Government started the teen parent units in 1997 which is something that I have always been particularly proud of as a member of the National Party because we recognised the needs of teen parents. In this Budget we are seeing $14.9 million being spent on teen parents. That will boost the number of teen parent coordinators from nine to 19 and get them into a role where they are using more intensive management in relation to what those needs are. This Budget goes towards coordinating what those teen parents most need: helping them to stay in work and education and ensuring that they get antenatal care at the very beginning of the process as well as budgeting advice parenting advice and everything else. We have seen teen parent coordinators working in some places; we reckon that we can take it a step further. We are also bringing in voluntary support and financial support with regard to those advisers so that they can be making sure that teen parents get what they need. 
In respect of support in homes which is a biggie we all know the stories. I know that members opposite will be hearing those stories as well. We see teen parents who are struggling to the point where they are probably getting pretty close to notifications to Child Youth and Family quite frankly and involvement in some pretty awful stuff. But where do they go for help? Where do they get that live-in assistance that they not only need but also deserve in a country like New Zealand? Will people step up next to them? I think that support in homes with trained staff available 24/7 so that teen parents can live in is a most worthy spend. If we want to have the economic argument then I think that the benefits as far as how those children develop and how they—hopefully—stay out of the system are brilliant. 
Then we have that group that is always overlooked: our teen fathers. I do not think that we focus so well even on teen mothers to be honest—I would like to see more going on there—but we do not actually focus on teen fathers at all. There are some good programmes around the country but we can coordinate them better. We can give teen fathers the resources they need to get some best practice and I am particularly proud of what we are doing there. 
We are also increasing the number of Child Youth and Family social workers in hospitals. When we talk about what is happening for our most vulnerable we need to step up stand up and listen up well. We are talking about support for teen parents. We are talking about compensation for those on benefits. We are talking about more Child Youth and Family social workers in hospitals. One baby under 2 years old is hospitalised in this country—at the hands of someone who should be caring for babies and looking after them—every 5 days; we have to do better than that. The rate of re-abuse quite frankly is far too high. There needs to be better coordination of what happens to those children when they get into hospital and we need to look at what we can do differently. The $6.6 million coming out will cover each district health board in this country and again I am proud to stand up and advocate for that spend. I think it is a good use of money and I am proud to say that that is part of the Budget. 
Then there is the Pathways to Partnership programme and no we do not hear a roar from Opposition members because they know that we are standing up and giving more power back to communities than they have ever had before. Local solutions simply cannot be driven from Wellington by officials here; they should be driven locally. It was not enough to take the money allocated to Pathways to Partnership and put that back into our communities. We have taken the family and community services spend of $110 million which is already there and we have added that to the Community Response Fund. We have said that we trust communities to know what is best. We will put that money into the hands of local community people—some retired business people and local officials—and we will look at that measure closely. 
We ask whether what we are doing now is working well. We are looking at the current Government spend and adding $90.5 million into that fund over 4 years to make sure that we are identifying where services can collaborate better and where that training and supervision is going for those fantastic people who work at the grassroots and on the ground level. We are stepping up and giving them resources. 
This Budget supports the people of New Zealand and those who need it most. I am incredibly proud to stand up and advocate for it. 
Hon DAVID PARKER (Labour) 
: 
 I will make a couple of general comments about equity before going on to try to undermine the myth the Government is portraying that this Budget achieves a significant rebalancing of the economy. 
First I think it is important to put on record that this Budget should be valued according to how much one values one’s word. There are three broken promises in this Budget. The first promise was made by John Key on behalf of the National Party before the election and that was that National would not increase GST. That promise was broken. The second promise was that National would not borrow for tax cuts. This Budget increases Government debt in order to fund tax cuts. It is not a mere tax switch as the Government pretends. It is increasing Government borrowing to fund tax cuts. That is the second broken promise—the Government promised it would not do that. The third promise which was made before the election was that National would roll out more free early childhood education. In actual fact this Budget cuts provision for quality early childhood education and this imposes a future cost on parents whose children are currently receiving that free early childhood education. So if one values the keeping of one’s word one would not value this Budget because those three promises have been broken. 
Other speakers have spoken about the fact that some of the benefits in terms of income tax cuts are largely dissipated through the effects of inflation and the increase to GST. That is true except of course for the highest income earners. We know that a full one-third of the cuts to income tax accrue to the top 5 percent of income earners. I think that bears repeating because it is easy to say too quickly. It does not bear scrutiny because it seems unfair that a full one-third of the total value of those income tax cuts goes to the top 5 percent of income earners. That is disproportionate and it shows that the overall effect of this Budget is what we always see from National which is that the proportion of taxes that are paid by low and middle income earners goes up and the proportion of total taxation paid by highest income earners goes down. Stripped bare that is what the Budget does. 
I will turn to the issues relating to whether this Budget is fiscally responsible and then I will deal with the issue of whether it rebalances the economy. David Cunliffe noted earlier that the Government borrows more than a billion dollars extra as a consequence of the tax cuts in this Budget. That is correct. In the first year the extra borrowing of the Government will be something like $450 million. I ask whether that is prudent at a time like this. Well I think it is not yet clear that the world is clear of the serious problems following the world financial crisis. New Zealand is better placed than most countries because of the previous Labour Government notwithstanding the protestations of John Key when he was Opposition spokesperson on finance followed up by Bill English who said exactly the same thing. Every time Labour ran a Budget surplus they said that we ought not to be have been running surpluses in those times and that we ought to have been giving tax cuts. 
If we had done that New Zealand would have been closer to the position of those European countries that have such high levels of Government debt which is causing problems not just in countries like Greece but also in Spain Ireland Portugal Great Britain Japan and the USA. In those countries high levels of Government debt are constraining Government action. The risk of this so-called double dip has been highlighted again by economists as being a consequence of the problems that we are presently seeing in Europe which has some serious problems with sovereign debt. Europe has some serious problems that go to the stability of the eurozone generally and many pundits are now predicting that the eurozone will break up because of the strictures that are being imposed on the Latin countries by Germany in particular and because of the imbalances that have been allowed to build up in Europe. There are massive trade surpluses in countries like Germany and there are trade deficits in countries like Greece which means that those countries have current account deficits as well as Government deficits. 
The prospect of the so-called double dip—of a second whammy if you like—besetting the world is real. It will not necessarily happen but the risk is substantial. In the last week I have seen reports that in Beijing there has been a 90 percent decrease in the volume of property transactions which has been holding up demand in Australia and therefore in this part of the world. A 90 percent decrease in the volume of transactions suggests that its property boom is coming or has come to an end. That could have some pretty big implications in this part of the world. 
That is significant because the Government has made some brave assumptions in this Budget as to future tax revenue. Those assumptions are very brave and they may not come to pass. I think Business and Economic Research Ltd has put it well in its Budget commentary. It states: “New Zealand’s largest single vulnerability is now its large and growing net external liabilities. New Zealand now owes the world $168bn or around 90 per cent of GDP.” I say good on it for acknowledging that it was right that the Minister of Finance acknowledged this as being the biggest risk to New Zealand at the moment. 
But the Budget commentary having identified this as “the largest single vulnerability”—and those were the words used by the Minister of Finance in his Budget speech—goes on to state that that vulnerability will get worse over the next few years. Of course that is because we have not only a Budget deficit as a result of the Government spending more than it collects in tax but also we have the country spending more than it earns in the world with the current account deficit going up to 7 percent of GDP by 2014. 
That points to a couple of things. It points to the fact that the so-called rebalancing of the New Zealand economy that the Government talks about is baloney. This Budget does not rebalance the economy. It rebalances taxes so that more tax is being paid by the low to middle income workers and less is being paid by the higher-paid workers. It rebalances only taxes; it does not rebalance the economy. The effect of this in terms of New Zealand’s overall net asset position in the world as predicted by Treasury is that by 2014 New Zealand’s net assets will be negative 100 percent of GDP. That is an enormous figure—negative 100 percent of GDP will be the sum of our net debt in the world. That should be worrying to New Zealanders because it is not sustainable. 
To have a current account deficit going forward in the future of 7 percent means that we are not exporting or saving enough. We are not rebalancing the economy towards savings in this Budget. If we contrast that with Australia we see that the big difference between the New Zealand and Australian economies is that Australia has a better savings record and therefore Australia has more investment capital available to it. It is no surprise that Australia with its better savings record owns our banks—we do not own our own. Every year we export to Australia not just the interest that we pay on our current account deficit but also the profits of those four big banks because those banks are Australian-owned. We do not own our banks because we do not save enough. The economy is not rebalanced to address that. 
In addition to that the Business and Economic Research Ltd analysis asks: if it is not the net external sector that is rebalancing and causing growth in the economy where is it coming from? Where is the Government going to see the growth in the economy driving a growth in revenues to get the Government deficit back to neutral? The commentary notes that the Treasury forecast assumes a rebound in non-residential private investment. It notes that this business investment will grow according to the forecast by 6.2 percent in the current year followed by 10 percent in the following year 4.7 percent in the year after that and then 3 percent in the following years. The commentary notes that that is a hugely optimistic forecast given that at the moment businesses have cash-flow problems. They are having difficulty accessing credit for expansion even if they are not having cash-flow problems. If they need to borrow some money from banks they are having difficulty accessing credit for expansion. 
The summary of the commentary by Business and Economic Research Ltd states: “Yes an investment rebound of this magnitude would be welcome news indeed. We are just unsure as to how confident we are of it occurring. But it is the basis upon which government revenue forecasts and hence the affordability of the tax cuts rests.” I think that is a good summary. So if this investment rebound does not come to pass as it is predicted to where does this leave the Government? Well it leaves the country with rising Government debt so the Government will have only three choices. It will have to cut spending and cut services it will have to increase taxes or it will have to flog off capital assets. The Government already knows that it has put us in that position because it is signalling that it will flog off capital assets—the silver that has been accumulated through years of prudent management by prior Governments—such as Kiwibank and electricity State-owned enterprises. State-owned enterprises will be flogged off in order to pay the operating deficit that the Government is accruing. 
Hon Sir ROGER DOUGLAS (ACT) 
: 
 There is no doubt that this Budget has been well-received by the public at large. There is also no doubt that this Budget is vastly superior to the Budget of last year. It is also superior to anything that Labour produced during its 9 years in Government. There are some good measures in this Budget but I will not dwell on that. I raise questions about two areas—and the last speaker David Parker raised a third area; I am not going to touch on that—where this Budget in my view does not stand up to the test of examination. 
The first area is that of expenditure. Prior to the Budget the Government talked about expenditure increasing by around $1.2 billion. In fact Government expenditure under this Budget increased by around $5.8 billion or around 9 percent. That 9 percent figure is around four times the current rate of inflation. It is fair to say that in looking at the increase in Government expenditure we should allow for the costs of offsetting the increase in the rate of GST but even allowing for that we see a situation where expenditure is increasing by around three times the rate of inflation. As a nation we simply cannot put up with that or continue to do that for much longer. The unwillingness frankly of the Government to deal with expenditure either in last year’s Budget or this year’s Budget will see debt-servicing costs rise from around $2.4 billion this year to $4.5 billion in 2014. To put it another way had this increase in debt not occurred we could have had a corporate tax rate that is 4 cents lower and a personal income tax rate that is 4 cents lower than they are. That would do a lot more to get growth going in this country than the increases in expenditure will. 
There were options to reduce expenditure if we had been brave enough to take them. For example there is approximately $3 billion of what I would call corporate welfare in this Budget. Frankly in my view most of the people who are the so-called beneficiaries of that corporate welfare would have rather had a 4c or 5c extra cut in the corporate rate of tax and paid 4c or 5c less in the personal income tax rate than actually receive that corporate welfare. I have never seen a Government that can pick winners or spend the money as well as individuals can. 
In my view the problem with this Budget in terms of expenditure is also that it takes a short-term view of expenditure. This Budget has undoubtedly been tough on expenditure for a lot of departments—undoubtedly. We have put a cap in place and that cap lasts for 3 or 4 years in some cases. But although caps work for a while they do not work in the long run and they put pressure on the system. What is required is much more fundamental change if it is to work. Fundamental change requires of a Government that it asks the right questions. The first question it needs to ask is whether a particular department should actually exist. If it says yes to that it should move on and ask about the functions that the department carries out and which of them should continue. In terms of the functions that will continue the Government needs then to ask whether it is delivering those functions in the most effective way or whether they should be opened up to competition—should they become contestable? Even when we determine that an item is desirable we still have to weigh up whether that item is as desirable as some new request for Government expenditure. Only by following that approach will we get expenditure under control. 
The second issue I want to raise—and it is I think an important one; and the last speaker David Parker touched on it—is the whole issue of the growth framework outlined in the Budget which I have to say is totally inadequate. It will not enable us to catch up with Australia by 2025 nor 2035 nor 2045. The Budget outlined the six factors that comprise the Government’s growth framework. The fact is that the most important item if we are to have growth was not even mentioned—it was not even mentioned. The most important item if we are to get growth back is the introduction of competition particularly the introduction of competition within the State monopolies of health education and welfare. If one does not want to privatise and open up those sectors to the private sector then one has to design a system that enables competition to take place within those departments. I personally want to see them opened up. 
The health education and welfare services are approximately 30 percent of this economy. They pose a huge problem because of the lack of productivity within those areas. We have seen over the last 6 or 7 years a decline in productivity in health of 15 percent for doctors and of 11 percent for nurses. Nothing in this Budget—nothing in this Budget—will do anything about that. The way that we avoid facing up to the lack of productivity is to increase expenditure. The same is true in education where we have a system that is 70 years old and that system is failing 25 percent of our kids. Each year 30000 kids come out of school inadequately prepared for the future. The idea in this Budget that somehow we can flat-line future expenditure growth in education and in health is nonsense given the present system. I know that the Government will say there is a $1.1 billion allowance for new expenditure but frankly that is not much more than the rate of inflation in the areas of education and health and it is simply not realistic. 
What are the six factors that the Government mentioned in its growth strategy and how is the Government doing on each of them? There is the regulatory environment for business the area of education and skills and the need for quality infrastructure. That is a nice idea but it is hardly the reality. 
I will wind up by saying this: the real cost of taxes is not the money that individuals send to Wellington. Instead it is the dead-weight loss that arises when taxes alter how people behave and we need to learn that. A review of OECD countries over a 40-year period revealed that those that had the fastest growth averaging 6.6 percent a year were those that spent less—spent less—than 25 percent of their GDP through the Government. If a country jumped to spending between 25 and 30 percent of its GDP in that sector the average growth rate fell from 6.6 percent to 4.7 percent or approximately a 2 percent drop. The trend continued all the way up. When Government expenditure was above 60 percent of GDP the average growth rate fell to 1.6 percent. Over time the compounding effects of adding just 1 percentage point to GDP growth are enormous let alone the 4 to 5 percent we could achieve. The difference between countries that achieve 6.6 percent growth and those with 1.6 percent growth—5 percent a year—means that it takes 45 years to double their income in the case of those that achieve 1.6 percent growth whereas those that achieve 6.6 percent growth double their income every 11 years. Over a 44-year period that happens four times for that group and 1.6 times over a 44-year period for the other. 
Hon KATE WILKINSON (Minister of Conservation) 
: 
 I move  
That this debate be now adjourned 
. 
Motion agreed to.