Norman Russel: Public Finance (Fiscal Responsibility) Amendment Bill — Second ReadingText is incorporated into the Bound VolumeNorman Russel: Public Finance (Fiscal Responsibility) Amendment Bill — Second Reading[Sitting date: 25 June 2013. Volume:691;Page:11255. Text is incorporated into the Bound Volume.]Dr RUSSEL NORMAN (Co-Leader—Green):I rise on behalf of the Green Party to speak on the Public Finance (Fiscal Responsibility) Amendment Bill. This bill does have a poor political genesis but it is none the less a good bill and the Green Party will be supporting it. I think that most people who read this bill will be pleasantly surprised by a number of the provisions within it. I think it is worth going through and looking at some of the provisions and some of the good elements of the bill.Some of the amendments that are going to be added are for example in clause 4 “when formulating revenue strategy having regard to efficiency and fairness including the predictability and stability of tax rates;”. It seems to me that including terms such as “efficiency and fairness” around revenue strategy is a good thing to do in a fiscal strategy document and obviously fairness includes things like a capital gains tax which is a very fair tax because it is highly progressive. If you were to look at something around fairness then you would introduce much more progressive taxation than we have in New Zealand at the moment because of course the very wealthy get most of their income from capital gain which is currently untaxed in New Zealand as opposed to pretty much every other OECD country. None the less this is a good provision to put in a Public Finance (Fiscal Responsibility) Amendment Bill.The bill also says: “when formulating fiscal strategy having regard to the interaction between fiscal policy and monetary policy;”. I know that my colleagues in the Labour Party have been concerned about this clause and I understand their concern. None the less I think that the clause as it has been amended is a fine clause in terms of looking at the interaction between the two. It does not say that one predominates over the other; it says that they interact with each other and I think that is a reasonable position to take.Furthermore what the bill says is: “when formulating fiscal strategy having regard to its likely impact on present and future generations;”. It is good to introduce into legislation looking at fiscal strategy—one would also hope in terms of economic strategy—a long-term perspective and that perspective is introduced in this bill by talking about present and future generations. I think that a lot of legislation in front of this House could well benefit from looking at the long-term impact on present and future generations and clearly the Labour Party’s arguments around the future costs of superannuation are perfectly legitimate arguments and I think that these clauses support a more responsible future Government looking at the debate around the future costs of superannuation. So I think it is good that we are adding these provisions into the Public Finance Act.I think that having the clauses around looking at the likely impact of fiscal strategy on future generations gives scope for Governments to consider those long-term impacts and look at what measures we should be taking today in order to deal with the generational or intergenerational impacts of policy that we are adopting such as superannuation policy. There are other provisions within the bill that are pretty innocuous and hard for anyone to disagree with such as: “ensuring that the Crown’s resources are managed effectively and efficiently.” These are some perfectly fine amendments to add into the primary legislation.However I think that perhaps the best bit of the bill is the stuff around the Investment Statement. This has been an innovation of this Government that I think has been a valuable innovation. It states that we should not when looking at the Crown’s accounts look just at the turnover if you like or the current expenditure and income; we should be looking at the overall investment position of the Government—that is looking at the capital assets of the Government and how those capital assets should be changing over time. The Government has introduced an Investment Statement effectively. Bill English introduced this and I think it was a very valuable contribution and now within this bill the Government is putting it in legislation and I think theGovernment should be congratulated on doing that. “The investment statement” as it says in new section 26NA(2) in clause 8 “must—(a) describe and state the value of the Crown’s significant assets and liabilities; and (b) state how those assets and liabilities have changed in value over time; and (c) forecast how those assets and liabilities are expected to change in value in each of at least the next 2 financial years … and (d) identify any significant differences”. I think that is a very useful exercise for the Crown to go through.In some respects I know that this bill was driven by National’s desire to privatise assets. It wanted to look at an investment approach in order to justify some of its privatisation agenda and obviously the Greens do not support that agenda. But the actual process of putting together an Investment Statement which looks at the Crown’s assets and liabilities and puts them in one place—and now we are creating a statutory framework for that kind of Investment Statement—I think is a valuable one. The Greens think it is particularly valuable because it shares a deep commonality with green economics if you like. One of the founding principles of green economics is that we do not look just at throughput; we actually look at the capital accounts. So when we are looking at the position of the Government we should not look just at the revenue and expenditure of that year but we should also be looking at the broader issue of the capital position of the Government and how the capital position has changed over time. Likewise when we look at the national accounts we should not look just at our GDP or economic activity over the course of that year. We should be looking at the underlying capital position of New Zealand: have we built capital assets over the last year or have we degraded our capital assets? Of course one of the ongoing problems of New Zealand has been the undermining of some of our capital assets and their foreign ownership.But the Green Party would take it further. Although we support this bill and we think it is good progress there are other things we would like to have seen in the bill but we recognise they were not going to be put in there by this Government. Those things concern broadening the capital accounts to look at natural and social capital. If we are to consider our capital we cannot consider just financial capital if you like. We also need to consider social and natural capital. If for example in the course of a year we dug up some of our minerals which is natural capital and if we then spent the resource we would essentially have turned natural capital into consumption. So at the end of that year we would look at our GDP numbers and go: “Well there’s been a lot of economic activity driven by mining.” But if we were to take the capital position we would go: “All we have really done is degraded our capital assets because we’ve dug up some of our natural capital and spent it on consumption.” That may be a perfectly legitimate strategy but because our national accounts do not focus on capital accounts—they focus on economic activity or turnover—often we hide the loss of capital. It is not very clear in our accounts because we simply look at economic activity. Sometimes economic activity looks like it is going great when all we are really doing is spending our capital and that is a very short-term strategy.One of the principles of green economics is that you need to look at capital accounts in all respects—not just financial capital accounts but also natural capital accounts looking at what is the position of our natural capital and also social capital. It is harder to quantify social capital although the Government has made some attempts to do that with its investment approach and although we disagree with some aspects of the Government’s investment approach there are none the less some interesting elements of it in terms of social capital. We believe that if we degrade social capital and if we save some money in for example health or education by not investing in and looking afterthe next generation in terms of health and education it might look like the Government of the day is saving some money and it may well be.But if you look at this from a social capital point of view we are creating ongoing long-term social problems for ourselves further down the road because we have degraded our social capital if you like. We would be creating generations of people who do not get access to education or have not had access to decent health services and that actually puts a further cost further down the track. When we do not invest properly in obesity prevention and preventing ill-health then the pressure on the health system further down the track is greater. It might look like we are saving some money today but from a social capital point of view we have degraded our social capital and we are going to pay for it further down the track.So although the investment statement approach that the Government has introduced in this bill is useful along with giving it a statutory framework it should not apply just to financial capital. In the Greens we think it would very useful to apply it to natural capital and social capital to give ourselves a much better perspective of what is going on in our society so that we are not getting a sense of just economic activity but also a sense of the underlying wealth and whether we are building that wealth or whether we are essentially degrading that underlying capital or underlying wealth in order to stimulate economic activity to make GDP numbers look good for 12 months. That is a great thing for Governments of the day. They like to look at GDP numbers because we have this national obsession with GDP numbers and economic activity.But from a green economic perspective we would ask what the fundamentals going underneath that are. Are we degrading our natural capital or in New Zealand’s case degrading our financial capital as is very clear from our current account deficit problem? Or are we degrading our social capital? So although we support this element it would be great in future in both Government accounts and national accounts to extend that accounting approach the capital or investment approach into areas other than financial capital. But all things considered and in spite of a very strange beginning this is not a bad bill in the end and I congratulate the Government on it.