Foss Craig: Debate on Budget Policy Statement 
Foss Craig: Debate on Budget Policy Statement 
[Volume:670;Page:17049] 
CRAIG FOSS (Chairperson of the Finance and Expenditure Committee): 
 I move  
That the House take note of the report of the Finance and Expenditure Committee on the Budget Policy Statement 2011 
. First and foremost let me acknowledge the members of the Finance and Expenditure Committee. We considered this particular item of business and this report on the Wednesday post the Christchurch earthquake and I acknowledge the way in which we dealt with that. As can be seen from the report members have been able to express their policy and political views quite clearly—I was actually in the earthquake the day before—and members have been very good in assisting me the chair to get this report to the House.  
I ask members to note page 5 of the report. The Minister of Finance and officials were before the committee a few weeks prior to our consideration of the Budget Policy Statement. Members will note the comment on page 5: “During our examination of these documents we considered carefully the likely impact of the September 2010 Canterbury earthquake. The events of 22 February 2011 occurred just as we were completing this report. Our thoughts are with all those affected.” I am grateful to members who thought to put that comment into this particular document because events were unfolding as we prepared it. Again I acknowledge the goodwill of all to produce the document that is before us today. 
It is very important to note just how important it is that the Government is able to continue its prudent management its transparency of accounts and its rebuilding of the New Zealand economy. The investment statement which forms part of the Budget Policy Statement for the very first time is a very good and useful tool to use as the various Governments of today and the future start to prioritise their spending and make more informed decisions about how scarce capital much of which is borrowed capital can be allocated in the New Zealand economy. 
Whatever the political hue of members that is a very very important document and I strongly suspect that it will form the foundation of further budgetary process papers as we go through. It is very important because it puts a focus on each and every single dollar—borrowed dollars in many instances—that the Crown has. Events of recent weeks financial shocks around the world and acts of God or of nature such as the earthquakes down in Christchurch demonstrate again our need to keep our pencils sharp so that we can allocate the limited resources financial and otherwise of this country to the places of most need. We have to remember that every dollar that is not efficiently allocated to whichever resource the Government of the day decides is a dollar that is not available for social policies or to rebuild the country in the case of tragic events such as those we have witnessed recently. That is very important to note. 
The Minister told the Finance and Expenditure Committee that the Budget will ensure will continue and will demonstrate prudent financial management of the public accounts. The previous Government had ongoing cumulative and compounding new-spending increases of $2.8 billion per annum over the last 5 years of its term. One of the first moves of the new National Government was to bring that figure down to $1.1 billion. That is not a cut in spending; it is a cut in the ongoing increase in spending. 
The Prime Minister and the Minister of Finance in his evidence before the committee and in the Budget Policy Statement noted that the Government’s intention this year is through the savings and investment Budget to bring that figure down to between $800 million and $900 million of new extra spending every year. Members will remember that the total Budget is about $65 billion or $70-odd billion so that figure represents new money every year. Yes they are very large numbers but it is very important to note that the rate of growth is changing and slowing down. 
The rate of unsustainable growth under the previous administration—$2.8 billion which are new dollars slopping around in the economy every year—squeezed the rest of the economy out of the game. The statistics and the metrics all show the same thing. They show that the real sector which is the tradable sector the export sector was flat-lining for the last 5 years of the previous administration. There was no real growth. That is what the numbers say. 
Hon David Cunliffe 
: And that looks good compared to today. 
CRAIG FOSS 
: A member opposite asks why that is important. It is important because that is the sector that creates the jobs pays the wages pays for families and funnily enough pays that thing called tax which allows the Government whoever it might be to allocate resources to education health disaster relief or whatever it might be. That is the where the money comes from. 
When the Government looks at its books and sees that the money coming in does not match the spending the Government would like to continue what is the difference? It is in borrowing. Recent events around the world have cast huge light—torchlight daylight sunlight or borax if you like—on the need for prudent management of the accounts and that is why this Budget is a savings and investment Budget. This Budget will start to arrest turn round and change behaviour in New Zealand. 
There was an unsustainable growth in spending by the previous Government—that is the squeezing of households. How did households react to the increased tax demands? How did households react to the increased demands of the Crown? They borrowed. They had to borrow and they ate the equity in their own homes. When those homes were going up in value OK that might have helped but now the bills are being sent to those same homeowners who had to borrow and consume their own equity to help them get through the last years of the previous administration. 
On the surface it all looked hunky-dory but the moment we scratched the surface the moment the global financial crisis started to hit and the moment a recession arrived—and remember that New Zealand went into recession 1 year before the rest of the world under the previous administration—we were in trouble. That is why the coming Budget will start to address that. 
New Zealand owes $180-odd billion to the rest of the world. Some members opposite say that that is not a problem because it is mostly private debt. But actually when one is in the rest of the world looking to lend money to New Zealand it is the New Zealand dollar denominated debt that is the first port of call. New Zealand owes about $180 billion. When this Government came in the forecast was for another decade of deficits and that was before to be quite fair the tragedies that have happened in Canterbury and Christchurch recently. 
The need for much more focused and prudent management the need to help turn round the economy—away from consumption away from borrowing and hoping—is more paramount now than ever. The coming Budget has a savings and investment theme. As I noted earlier the investment statement which is a very important document will be contained in it. 
I need to raise a few matters that other members will probably raise in their various speeches. To be fair I note that in the Finance and Expenditure Committee’s report Labour and Green members made very clear their policy intentions. I say: “Good on them.” It is obvious whose points those were—the point being that every single one of those policies demands more borrowing more taxes and more spending. 
Every single policy intention involves the same failed policy that got New Zealand into more of a bad place than it otherwise would have been in. They are trying to continue that policy with their various announcements. I think they are up to about $5 billion or $6 billion so far. One of their arguments—which they will make later I am sure—stems from their confusion over the difference between debt and equity. They are totally ignoring risk. One member I believe is of the opinion that anything that exceeds the Government’s cost of capital should not be sold essentially. 
Well the other side of that argument therefore is that anything that is not achieving the Government’s cost of capital on a return should be sold. If that is the case then members opposite are saying: “Cash up New Zealand superannuation.” They are saying: “Sell every housing asset in New Zealand.” If they argue that one should not sell everything exceeding the cost of capital they are therefore arguing that one should sell everything that is not. 
I ask those members to look at the numbers. They are mentioned right here—in the investment statement—in black and white. They are hard numbers and they mean that there will be some difficult priority choices for New Zealand. 
I look forward to other members’ speeches to clarify perhaps their intention that they do not want to cash up all of those investments returning under the cost of New Zealand’s Government capital. Thank you.