Groser Tim: Budget Debate 
Groser Tim: Budget Debate 
[Volume:673;Page:19242] 
Hon TIM GROSER (Minister of Trade) 
: 
 The Budget has to be considered not in a vacuum but in the context of the three Budgets that Mr English has presented. To understand where we are trying to steer New Zealand I think we have to have a close appreciation of exactly what the fiscal and structural problems are that the Budget is intended to fix. So it is worth spending just a few minutes rehearsing the context of this Budget to understand where I think we want to go as a country. 
The context of this Budget—the narrative—is now becoming I think a little clearer. By 2004 the froth of the early conditions of the previous Government had been knocked off and the traded sector—that is roughly speaking the competitive part of the sector the thing that creates wealth rather than spends wealth on our behalf—was already in recession. Not a single job had been added in the last 5 years. There was also massive ballooning of private sector debt from around $80 billion or $90 billion in 2000 to about $160 billion or $170 billion in early 2009. Inflation was at 5.1 percent—people have forgotten that—at the end of 2008. We had a massive blowout of core Government spending. From memory it was something like $32 billion in 2000 which had gone up to about $60 billion in 2008; there had been a 50 percent growth in just the last 5 years. The economy had grown by less than 1 percent in each of the previous 3 years prior to our becoming the Government compared with Australia growing at over 3 percent. As we now know New Zealand achieved the remarkable feat of entering into recession—it was the only developed country to be in recession—before the global financial crisis was triggered by the collapse of Lehman Brothers. Not just Budget 2011 but also the previous two Budgets taken in conjunction as a suite are designed to fix those problems. 
I have to say thank heaven for the election. If New Zealand had continued on that trajectory I know exactly where we would be today: we would be in an IMF recovery ward along with other countries that have comparable debt-to-GDP ratios. We proved quite conclusively as the Prime Minister put it that we can spend like a First World nation. Now is the time to prove that we can earn like a First World nation. 
What are we trying to do? First of all we are trying to manage the current fiscal situation against the background of some very severe turbulence coming out of left field. Not only have we had the global financial crisis which was the worst economic recession in the last 70 years and has tested—and let us face it continues to test—many many developed economies but also we have had two massive shocks from these two earthquakes. If anyone thinks this is just an idle comment I tell them to just look at what has happened in the No. 1 export market of New Zealand and the No. 4 export market to New Zealand. I am talking about Australia and Japan. In Japan our fourth-largest export market we have seen exactly the human impact that the dreadful disasters—the nuclear fall-out the tsunami and the earthquake—have created. There has been appalling loss of life but also it has severely impacted on their economy and their production. In case anyone did not notice although the tornados and floods in Australia did not lead to large loss of life—thank goodness—they have resulted in the worst quarterly GDP outcome for Australia in 20 years. 
These extreme events—known as black swans I think in technical literature—happen. They do not happen just in New Zealand; they have happened to two of our closest partners. And they have been an added dimension for us to deal with. Nevertheless this Budget has stuck to the task and has steered New Zealand through these difficulties while addressing the Christchurch problems in a very coordinated and structured way. 
Where are we with this Budget? First of all we have continued to restore some fiscal prudence on New Zealand. Taking account of the past and new measures to restrain the growth of public expenditure we now forecast that we will be back to roughly I think from memory a $700 million deficit by 2013 and to surplus by 2014. This will allow us to start repaying debt which many developed countries with very high debt-to-GDP ratios may not be so favourably placed to do. It will be a remarkable testimony in my opinion to Mr English and his senior colleagues that we have gone through this most difficult situation with some reasonable prospects in sight. 
Nor have we forgotten what I would call the long-term structural agenda. Nothing had been done under Labour to address an outmoded tax system or to reduce tax and incentive-sapping measures. We have had the most important tax reform in 20 years. We now have a situation where in gross terms—not in net terms because of course a fiscally neutral tax package was introduced—two-thirds of the revenue costs went to reducing taxation on people below the average income. So much for the rich mates’ ritual we hear from members on the other side! They simply will not look at the facts. We now have the highly favourable situation where three-quarters of New Zealand taxpayers pay a top marginal rate of 17.5c. To put it round the other way they are actually able to keep 82.5c of every marginal dollar they earn. 
This will take some time to seep through the economic structures of New Zealand before we can see the incentive effects coming through in a very positive way. But one thing is very clear: the advice we received from many sources—not just Treasury—was that if we wanted to do something to create a step change in New Zealand’s economic performance we had to address these tax issues. That is exactly what we have done. 
The structural programme has also advanced on a number of fronts. Education is not just a social policy issue; it is also an economic reality. I think there is a wide understanding in New Zealand that at the upper level of New Zealand educational achievement there is nothing wrong at all with our education system. In fact it is a world-class education system. The people at the bottom of the heap have been underperforming and we know what those statistics tell us. So although we started a programme of addressing some of the structural deficiencies at the tail end of the New Zealand education system through such elementary steps as introducing standards by which parents could make some judgments about whether their children are making progress we are also advanced across a number of areas. As for the suggestion that this might have been a slash-and-burn Budget I tell the House that total education spending will I think reach $12.2 billion this year which is an all-time high. We are a moderate Government doing sensible things in a moderate way and I think we have a lot of support from New Zealand for that approach. 
I will also focus on infrastructure. I recall the Prime Minister making the point a couple of years ago when he said that New Zealand is in a sense a country like a small company with outstanding assets but under-invested in its own future. We have had to ramp up structural investment in our infrastructure. The State will inevitably play a large role in that; we have no ideological problem with that whatsoever. So the State has invested very significant money in what everyone calls—I think completely correctly—the superhighways of the 21st century and this Budget has rolled out another $900 million - plus to complete the next cycle of that investment. 
I have the privilege of going around export companies in New Zealand and company after company always come to me and say what a boon this investment will be to them. One of the things that is becoming clear is that the distinction between manufacturing export companies and service export companies—what we call them—is no longer clear. I went to see a company called FRAMECAD an outstanding New Zealand export company. It is hard to describe what it is. Is it a manufacturing company? Yes. Is it an information technology company? Yes and it sends its CAD designs of framing materials through ultra-fast broadband to machines it has pre-installed in locations. It is companies like that—and sometimes we will not even be able to predict who it will be—that will take advantage of these things. We are making an investment in our future out of trust that this is the right thing to do. 
Finally I will focus on investment in water. I think that that will prove to be an outstanding background for us to exploit all the advantages of these new trade agreements. Thank you.