Norman Russel: Budget Statement — Budget DebateText is incorporated into the Bound VolumeNorman Russel: Budget Statement — Budget Debate[Sitting date: 16 May 2013. Volume:690;Page:10034. Text is incorporated into the Bound Volume.]Dr RUSSEL NORMAN (Co-Leader—Green): That was a particularly angry and bitter Prime Minister for a Prime Minister who has just delivered a Budget but there you have it. I guess when you are the Prime Minister of a Government for the 2 percent and of the 2 percent that is how you feel about your Government.The Government gifted billions of dollars in tax cuts to the top 2 percent. It then transferred ownership of Mighty River Power from the 100 percent of New Zealanders to the 2 percent. The other 98 percent—well they got to pay higher GST and higher electricity charges while the 2 percent—[Interruption]Mr SPEAKER: Order! The level of noise from the corner over there is too loud and unreasonable for the member trying to give his speech.Dr RUSSEL NORMAN: Thank you Mr Speaker. National Party members do not like the truth. They do not like to hear the truth—that National is a Government of the 2 percent for the 2 percent. It was 2 percent of New Zealanders who got given ownership of Mighty River Power and it was 98 percent of New Zealanders who lost ownership of Mighty River Power and who have to pay higher taxes higher GST and higher electricity charges.The three key challenges facing the New Zealand economy are how to deal with the growing current account deficit how to deal with the growing environmental deficit and how to deal with the growing social deficit. This Budget makes all three deficits worse. It is another triple deficit Budget. New Zealand’s external deficit with the rest of the world is now over $10 billion a year and rising under this Budget to $17 billion a year by 2017. We are funding that by more offshore borrowing and by selling assets to foreigners.Our environmental deficit can be seen in our growing greenhouse emissions and the widespread contamination of fresh water from Northland to Southland. Groundwater in Canterbury is now so contaminated with dairy runoff that it could literally kill an infant if they drank it according to the medical officer of health. Our social deficit is seen in the rapid growth in inequality and poverty Third World diseases like rheumatic fever and an impossibly expensive housing market. This Budget from the Government of the 2 percent makes economic environmental and social deficits worse. But before I deal with these critical issues facing the New Zealand economy more broadly I want to discuss the Government’s much-lauded possible return to surplus by June 2015.After the National Government’s record $46 billion borrowing spree to pay for amongst other things tax cuts for the wealthy and pork-barrel motorway projects the National Party is slowly finally getting its out-of-control borrowing under control. But Bill English still plans to borrow $70 billion by 2016-17—that is right $70 billion. That is $15000 for every person in the country under this big-borrowing Government. Future New Zealand taxpayers will pay dearly for this borrowing spree one of the worst in the OECD.Since the global financial crisis the increase in net Government debt as a percentage of GDP by this Government is worse than Australia worse than Poland worse than Italy worse than Denmark worse than Canada worse than the Netherlands worse than Chile worse than Austria worse than Belgium worse than Hungary worse than Estonia worse than Germany worse than Mexico worse than Korea worse than Finland worse than Israel worse than Switzerland worse than Sweden worse than Turkey and worse than Norway. I suppose we should take heart that National did not borrow quite as much as the Governments of Greece Spain Portugal and Ireland. National inherited Government accounts that had virtually zero net debt.The previous Labour Government had paid down Government debt against the opposition of the National Party who said that the surpluses should be used to pay for tax cuts for the rich rather than to pay down the Government’s debt. The Labour Government did not do so well on current account deficit but on Government debt reduction you really could not fault it. If the then National Opposition had had its way the New Zealand Government would have hit the 2008 global financial crisis with high Government debt and hence less fiscal headroom to buffer the effects of the global downturn.So after opposing the reduction in Government debt Bill English came into office inheriting zero Government debt. The first thing Key and English did was to give away $2 billion a year to upper-income earners. Then they came up with a wish list of $12 billion in pork-barrel new motorway projects without business cases—they just picked them for electoral reasons. The Government books then turned savagely into the red and National started to build up Government debt once again.It then told us after the big tax cuts for upper-income earners that there was not enough money in the Budget so there would have to be cutbacks there would have to be asset sales and it would have to increase GST for middle and lower income New Zealanders. So there were cuts to night classes cuts to the Department of Conservation and we were told that we had to sell electricity assets to pay for school buildings and for irrigation subsidies for National’s donors.Today the Nats crow about the projected potential Budget surplus. Only in an Orwellian world would the party that did everything to undermine the Government’s accounts get any credit for any potential return to surplus. But the more important issue is whether the Government’s Budget balance is the biggest issue facing the New Zealand economy anyway. Bill English certainly did not think so in the past. He said in his Budget 2010 speech: “New Zealand’s largest single vulnerability is now its largeand growing net external liabilities.” He said that the growing interest bill from that rising debt was a drain on our incomes and a drag on the economy.Later that year he promised more saving less debt-fuelled consumption and a continued shift away from leverage property investment. Well we saw what came of that in the housing market. He used a Treasury chart—because Treasury backed him on this—to show how the tradable sector the internationally competitive part of the economy comprising exports and import-competing industries actually shrank in the 5 years from 2005 to 2010. By contrast the non-tradable sector the spending part of the economy grew by 15 percent.All these statements from Bill English highlighted the imbalances in our economy as a major problem that National planned to fix. We publicly agreed with Bill English’s analysis of the problem even if we were sceptical of his solution. Of course the Greens had been calling for action to rein in the current account deficit for many years before with the then Labour Government when the country also had massive current account deficits. Today after 4½ years of a National Government we are holding National to account. Has National’s management of the economy produced a rebalanced economy?Treasury and Bill English no longer produce the tradable versus the non-tradable graph—surprise surprise—so we had the Parliamentary Library update it. It turns out that things are getting worse. If you look at the spending side of the New Zealand economy according to Bill English’s graph that is growing at a great pace while the internationally competitive part of our economy has stagnated. In fact in the last quarter of 2012 the tradable sector actually contracted. So using Bill English’s own favourite measure of responsible economic management—that is the tradable sector versus the non-tradable sector—it is clear that economic rebalancing is failing. That is the real story of this Budget. As a country New Zealand is borrowing to fund its consumption and as with so many things National has no idea what to do about it. National figures that as long as the top 2 percent are getting richer it does not matter whether the country as a whole is getting poorer.The metric that effectively aggregates all measures of rebalancing across the economy is the current account. The current account is the key economic measure of the success or failure of the broader economy. It is a far more important measure than whether the Government is in surplus or deficit because it tells a story of whether the country is in surplus or deficit. Today we see that the country’s deficit is getting much much worse. New Zealand’s current account deficit is one of the worst in the OECD second only to that of Turkey. It is currently 5 percent of GDP and projected by Treasury to continue to widen to 6.5 percent of GDP in 2017. The average deficit within the OECD is less than 1 percent.The International Monetary Fund estimates that New Zealand’s current account deficit will be the worst in the OECD every year until 2018 which is the end of its forecast period. There are only two ways to finance the country’s massive current account deficit: either through further overseas borrowing to pay the interest on the money that we have already borrowed or through selling assets to foreigners. Borrowing must be serviced by future generations of New Zealanders. Selling assets means that we are literally selling the productive capital and land out from under our feet. It is no surprise that the Budget today projects that the net debt position of the country will increase to 81 percent of GDP by 2017. That is over $200 billion in net debt that we are going to owe to the rest of the world or around $43000 for each and every New Zealander. That will be the legacy of this National Government.This Government has not made the hard smart and courageous political decisions for the long-term good of our nation. It is our children who will ultimately inherit a country that is less economically secure increasingly owned by foreigners and offeringfewer opportunities for those children to be the dynamic creators of their own destiny. They will leave as so many have before particularly under this Government. But I want our best and our brightest to have a reason to come home again.In 2010 I found myself strongly agreeing and supporting Bill English’s vision for a rebalanced economy even if we did not believe that his tax cuts for the wealthy would deliver that rebalancing. So now we find ourselves in the slightly unusual position of wanting to finish the work that Mr English identified and then abandoned—that is the work to rebalance our economy. Economic rebalancing will be a key priority for the Greens in Government as you cannot have a smart Green economy without it being economically sustainable. Genuine rebalancing can be difficult because you have to manage the economy with a long-term view in mind not just the next election. Genuine rebalancing is not for politicians focused on the short term. Genuine rebalancing is as far as the Green Party is concerned the only responsible way to run an economy.So how do we propose to rebalance the New Zealand economy? We have a package of solutions but today I want to focus on just three. Firstly the Green Party has the courage to implement a comprehensive tax on capital gains excluding the family home. We have been advocating a capital gains tax for years and it is heartening to see Labour coming on board. A capital gains tax would drive investment from property speculation into the productive economy assisting rebalancing. A capital gains tax would help take some of the heat out of the rising house prices in Auckland while simultaneously helping the Government to balance the books. A capital gains tax would lower demand for mortgage borrowing partly funded from overseas easing upward pressure on the exchange rate.Secondly we also have to address monetary reform if we want to deal with the housing bubble and the overvalued currency that is destroying the tradable sector. We would give the Reserve Bank a broader legislative mandate to look beyond just inflation and look at the external imbalances. This would enable a lower official cash rate to take pressure off the currency helping the export and import competing sectors. We would work with the bank to accelerate the use of new tools for managing non-tradable inflation and asset bubbles. The announcement in today’s Budget is a case of too little too late.Furthermore nearly every central bank in the world is getting active about defending their economies many by using quantitative easing or publicly created money. Having considered all the feedback on our proposal to use quantitative easing or QE to help bring down the value of the New Zealand dollar I still think there is value in running a trial programme of refilling the Natural Disaster Fund with offshore assets paid for by using quantitative easing. The private banks are allowed to create money for private profit; I do not see why the central banks should not be able to create money for public benefit.At the moment our Natural Disaster Fund is completely empty. In fact it is negative. If there is another disaster soon there will be literally no funds to cover the cost meaning we would need to borrow to pay for it and of course we would be borrowing freshly printed money from offshore central banks—the irony. Using quantitative easing in this targeted way is a good way of measuring how effective it can be at putting downward pressure on the dollar while putting the resource into an important area where it is needed—funds to pay for a potential disaster. The Reserve Bank has finally conceded that you cannot be a pacifist in a currency war and is currently using its limited reserves to intervene in the currency market in an underpowered attempt to lower the dollar. It needs more firepower and quantitative easing can provide that firepower.Thirdly we need capital market reform. Ninety four percent of our banking sector is foreign owned and constitutes the single largest component of capital drain out of New Zealand. Record bank profits are strip-mining the country of much needed capital. The Government has a market mechanism to slow down the capital drain from New Zealand. It is called Kiwibank. We would strengthen Kiwibank—thanks Jim Anderton—by allowing it to retain more of its earnings so it can grow faster. We would also add further capital injection if necessary so that it can scale up to really take on the Aussie banks. We want to help build Kiwibank into a sophisticated retail and commercial bank so that it can compete. A stronger Kiwibank is great for economic rebalancing.I want to move from the economic deficit to the social deficit. When Bill English unveiled his centrepiece tax shift in Budget 2010 he promised it would work to rebalance the economy. We now know that was not true. We do know however that the tax cuts for the wealthy and the GST increases for the rest have made New Zealand more unequal. The gap between those who have a lot and those who have a little is now the widest it has ever been. New Zealand has gone from being one of the most equal countries in the developed world to being one of the most unequal. This is a dark social and economic legacy one that hurts us all but falls heaviest on our children especially those unlucky enough to be born into the most vulnerable families.One quarter of all New Zealand children are growing up in poverty—that is about 270000 kids. They are our friends’ children. They are our neighbours’ children. They are the children of our colleagues and acquaintances. They are our nieces and nephews. They are our mokopuna. They are our children. Bill English told us this week that he does not know how to fix child poverty even though he knows how to create child poverty. The Budget delivers virtually nothing to address poverty. It is more important to National to deliver a 0.05 percent surplus than to deliver for our poor kids. Budget 2013 feels more like crumbs for kids rather than an honest meal and maybe it is not even crumbs.There are solutions to child poverty if you have the courage to find the ways to fund and implement them. We need a finance Minister who understands the economic cost of not addressing child poverty. Child poverty costs $6 billion a year. This is a conservative estimate and it does not cost that much to end it. To implement our solutions to bring 100000 kids out of poverty would cost approximately $360 million a year for the next 3 years. A more equal New Zealand is a happier less divided place to call home.Then there is the environmental deficit. If you love spending weekends at the beach exploring our national parks or swimming in your local river this is not a Budget for you. National is funding the rapid expansion of irrigation before establishing strong environmental standards around water. Since 2007 an area the size ofLake Taupō and Lake Te Ānau combined has come under intensive irrigation. National is planning to increase it by the same amount again. National is toxic to our rivers. National has rolled out the red carpet to foreign oil companies to drill for deep-sea oil before it even knows how to plug a deep-sea oil well if it goes wrong. National is toxic to our oceans.The Department of Conservation is being forced to cut jobs. In total 161 Department of Conservation jobs have gone under National’s watch. The jobs are from the front line—the jobs of the people who work to protect our biodiversity. National is toxic to our wild places. The taxpayer subsidies being paid to greenhouse gas emitters mean that New Zealand’s emissions are continuing to increase even as the global level of carbon dioxide hits 400 parts per million. National is toxic to the climate.When National took office it told us that a key measure of its success was the rebalancing of the economy. Now 4½years later we can definitively state using itsown figures that National has failed to rebalance the economy; that is why the word was never mentioned in the speech. Budget 2013 has focused on the potential end in sight for Bill English’s borrowing binge. I guess that is a good thing but stripping it back a layer we see that this possible fiscal surplus is a house built on sand. Tax cuts for the 2 percent and asset give-aways to the 2 percent are not smart ways to run an economy for the long term.A smart Green economy would involve making some of those courageous decisions that would shift our economy on to a more sustainable and resilient footing. A smart Green economy would protect our environment because our economy depends on our environment. A smart Green economy would see our growing rates of child poverty as unconscionable. The Greens have the courage to run an economy in the long-term interests of 100 percent of New Zealanders but more than that we care not only about the 100 percent of New Zealanders today but also about the generations yet to come. Thank you.