Parker David: Estimates Debate — In Committee 
Parker David: Estimates Debate — In Committee 
[Volume:674;Page:20413] 
Hon DAVID PARKER (Labour) 
: 
 I would like the Minister in the chair the Acting Minister for Economic Development the Hon David Carter to respond to the reality that the Government’s own Budget shows that the underlying structural problems in the New Zealand economy remain unresolved. This is shown by the projections on page 70 of the Minister’s executive summary—the Minister may want to look at the documents while he takes the time to respond—that show that New Zealand’s current account deficit gets worse every year from now. 
We have just been through a recession in New Zealand as have other parts of the world and that is not all the Government’s fault. But during that period of recession New Zealand’s current account deficit did reduce. That is because economic activity went down. People were buying fewer consumption goods and fewer purchases were made. As a consequence there were fewer imports. Therefore the current account deficit went down. This year the current account deficit has been recalculated recently by Statistics New Zealand. At one stage it had wrongly included the reinsurance proceeds from Christchurch as being a current account payment rather than a capital payment but stripped out the current account deficit is now on the rise again. The projections in the Budget showed that the current account deficit next year goes to 4.1 percent negative of GDP then 5.2 percent of GDP in 2013 then 6.8 percent of GDP in 2014 then negative 6.9 percent of GDP in 2015. So by then the current account deficit as a percentage of GDP will have gone up every year for the 5 years to 2015 if this Government is re-elected. In other words during that period more than $10 billion per annum extra in the current account deficit is added. 
Hon Steve Chadwick 
: How much? 
Hon DAVID PARKER 
: Stevie Chadwick asks “How much?”. The amount is over $52 billion extra that effectively has to be funded by New Zealand borrowing money overseas. So New Zealand’s net investment position in the world over that period goes backwards every year. Under the Government’s prescription if it is re-elected according to its own projections come 2015 New Zealand gets poorer—and that is after the previous year where it has got poorer and the year before that where it has got poorer. 
According to the Government’s prescription after 6 years New Zealand will be poorer every year—every year. That is why Treasury has said to the Government that New Zealand has structural economic problems and that is one of the reasons why New Zealand needs structural change in our economy caused by the Government pulling the levers it can pull to change the direction of our economy. What are those levers? Well the problem for the National Government is it has ruled out virtually all of them. It has reduced savings to KiwiSaver through its constant tinkering with it and through changing the generosity of the scheme so it will not get a marked improvement in New Zealand’s savings as a consequence of that particular change. It has ruled out a land tax to try to change investment patterns in New Zealand. Now it has ruled out a capital gains tax as being appropriate. 
So this situation starts to look a bit like the Rudd Government in Australia that was so rudderless it was eventually penalised at the last election and only just squeaked in for a second term. It looks a bit like the Americans who cannot do what is so obviously necessary in America which is to change its tax system to cure some of its problems. Members do not have to take my word on this. I want to quote a couple of the third party economists. The BNZ has said recently that New Zealand has an investment problem as the investment signal is wrong because of the tax bias in favour of speculative investment. Westpac’s chief economist Dominick Stephens said: “New Zealanders are incentivised to borrow money to buy land rather than invest in productive assets. If we introduced a capital gains tax that incentive would be diminished and there would be a greater incentive for people to save via bank deposits or productive business ownership”. 
What Westpac’s economist is noting is that if we get the investment signal right then some of that money that is currently over-invested in the speculative sector would go into the productive sector and that would grow well-paid jobs for New Zealand. It would create more jobs for New Zealand and New Zealand would begin to turn round the ship. This is a problem that has gone on for two decades in New Zealand. Our current mix of savings tax and monetary policy has seen New Zealand get poorer essentially continuously for more than 20 years now. Unless there is structural change that pattern will continue as the Government’s own Budget projections show. It is not just Westpac’s economist who is saying that. 
Gareth Morgan has said that the current exclusion of capital gains taxes is “the biggest tax rort in the country and one that has cost us dearly in terms of efficient allocation of capital economic growth and employment.” Again there is another reputable economist saying that the current settings that the Government refuses to change that have led to this blowing out of the current account deficit going forward costs us dearly in terms of the allocation of capital which suppresses economic growth and means that we have higher unemployment and worse-paying jobs than we would otherwise have. 
It is not just the economists; virtually all of the commentators in the media are saying the same thing. The  
Dominion Post  
said: “There is a gaping hole in the tax system. Different sources of income are taxed differently. Earn $50000 by working 40 hours a week and you will be taxed at the going rate for income. Make a $50000 profit on the sale of a rental property and you will not be taxed at all”. Mike Hosking said: “we’ve for years in this country placed an absurd advantage on owning property. And given it’s free of tax you wonder why we’ve become so reliant on housing and why the economy has been so tipped towards real estate.” That is the question posed. It is a rhetorical question; we already know the answer. Anthony Hubbard said: “Capital gains taxes are perfectly ordinary taxes used by most developed countries. They are not recipes for instant economic ruin - otherwise these wealthy countries would be poor. A capital gains tax does not mean everyday Kiwis would be crushed. Capital gains taxes should not lead to panic in an election year: there is nothing in them to panic about.” 
Well National is of course panicking about this because it knows it is on the wrong side of this debate. We have bad news internationally at the moment. The Government will be saying “Oh poor they are! Oh woe we are because we’re having to deal with these circumstances.” The reality is that New Zealand’s circumstances are parlous because our net investment position in the world gets worse every year. Yes the Government deficit is a problem. It is made worse by the Government’s unaffordable tax cuts which are so weighted towards the highest income earners. 
But the greater problem is our current account deficit which is growing ever larger and is leading to New Zealanders getting poorer every year. It is the lack of a plan from the Government to address that which stands out. New Zealanders and commentators are increasingly saying this. The Government has not pulled any of the structural levers at its disposal. Last week it said that our monetary policy is perfect and we do not need to change it. It says it has it right on savings despite the fact that it ignored the Savings Working Group recommendations. The rate of increase of savings through KiwiSaver will be lower than it would otherwise be. Also the Government will not pull any of the tax levers. So it will not touch monetary policy it will not touch savings and it will not touch the tax mix. It calls our tax switch “tax and spend”. For the Government a tax switch is just a tax switch but for us somehow changing taxes to have a capital gains tax to fund a tax-free zone GST off fresh fruit and vegetables and a research and development tax credit is not a switch; it is tax and spend. 
This Government has no credibility on these issues. That message is getting through. It said our policy would put a dagger through the heart of the economy. It has been shown to be wrong. It thought this would be a suicide pill for the Labour Party but that has not proved to be the case. It has not proved to be the case because we under Phil Goff are brave enough to take these important decisions that need to be taken for our country. 
The Government’s own figures show that its plan for the economy scant though it is is not working. Structural tax changes are needed in order to make structural changes to the economy to grow our export base. I know the Minister in the chair thinks that agriculture is virtually the only game in town but we are not going to get richer as a country by relying on agriculture alone. That is why the Manufacturers and Exporters Association and the Productive Economy Council are both in support of the tax changes we have proposed because they know that that is right to get the investment signal and to get some of that money that is currently going to the wrong place into productive enterprise.