Cunliffe David: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
Text is incorporated into the Bound Volume 
Cunliffe David: Climate Change Response (Moderated Emissions Trading) Amendment Bill — Procedure Second Reading In Committee 
[Sitting date: 24 November 2009. Volume:659;Page:7937. Text is incorporated into the Bound Volume.] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I want to use this call to look more closely at some of the fiscal assumptions in the Climate Change Response (Moderated Emissions Trading) Amendment Bill. They are both huge and very much open to debate. Already in this debate tonight we have touched on some numbers that would boggle the minds of most New Zealanders and cause a great deal of concern and anxiety because for every New Zealand man woman and child we are looking at thousands and thousands of dollars of potential tax liability arising from the change between the scheme proposed by the previous Government and the current scheme. 
In respect of this part of the bill I will take a couple of minutes to examine some of the assumptions behind that argument. To some degree I want to take the Government at its word and run some “even if” arguments—even if one accepts some of its presumptions where does one get to? 
The Government contends that the value of the carbon subsidies in this bill is only $50 billion. 
Hon David Parker 
: Only? 
Hon DAVID CUNLIFFE 
: My colleague remarks: “Only” because that is a 50 with a lot of zeroes after it—$50 thousand million by 2050. The Government has as recently as this morning reconfirmed one of the two great assumptions upon which that mid-range Treasury estimate stands and there is now consensus in this House on the price path for carbon that the Government is using as the basis for its estimates. There is now a shared understanding that that price is $25 a tonne until 2013 and $50 a tonne thereafter which is fairly parallel to the estimates made by the Australian Government. Of course this Government is giving in addition to the $25 short-term price a two-for-one 50 percent “buy now get one free” discount which is kind of like Noel Leeming on steroids but I leave that aside. 
The key difference between the $50 billion or 6 to 8 percent of GDP debt that was in the Cabinet paper of 21 September—which was the basis for the Government’s decision to proceed with this bill—and the $110 billion or 14 to 17 percent of GDP that Treasury and the climate change working group officials briefed the Finance and Expenditure Committee on is not in respect of the price path but in respect of whether it is fair to include the compounding effects of the charge. That is something akin to the time value of money allowing a cost of capital and of course there is a broad precedent for doing so in the Government accounts. 
Every Government entity that has a capital asset pays a capital charge on that asset. It varies by premium on the Government’s cost of capital. It is in the range of 8 to 11 percent depending on the entity. It is charged every year. It is an expense on that entity’s income statement and it can be capitalised as a debt on the entity’s capital account. So that is part of Government accounting. I see no reason why we should depart from the process of including in the forward cost estimates some reasonable assumption around the cost of capital. Treasury’s version of that as disclosed to the select committee was that it gets the figure to around $110 billion cumulatively including those capital charges or interest charges by 2050. 
We are happy to have a reasonable debate about whether the result is $120 billion $80 billion or $90 billion depending on what interest rate is used. Of course there will be variability and that is why we asked the officials when they were before the select committee to show us the bell curve—the distribution of those costs depending on the various modelling assumptions that they had put into their analytics—but they could not. Both Treasury and the climate change working group could not explain what sensitivity testing if any they had done around those humungous estimates. That was of great concern around the committee table although some were too polite to say. There is to this day as far as we can tell no bell curve of simulated probability distribution for those costs. We know that there are different variables that can be assumed. As Treasury’s regulatory impact assessment unit said the bottom line is that the quality of the analysis here is just not appropriate for a bill of this magnitude. I mean no offence to officials who have had an extremely difficult job and have been working under extreme time pressure to get this bill through. 
So we are left with taking a most generous position. Let us assume away any need for sensitivity testing. Let us take the Government at its word that it will be only $50 thousand million by 2050 to ordinary Kiwis on their net tax position not $110 thousand million by 2050. Let us give that one for now for the sake of argument to the Government. What next? It is now common ground that the Cabinet paper of 21 September the crucial Cabinet paper was wrong. There was a typographical error in the text. It was not 6 to 8 percent of GDP but 14 to 17 percent of GDP equivalent. I hear people in TV-land or radioland asking themselves: “Does this matter?”. Let me put it in context. When the Government changed at the last election the total amount of net Crown debt was a couple of percent. The total amount of gross Crown debt—that is all the debt the Government owed around the world—was equal to about 18 percent of GDP. It had been down to 17 percent but it came up to around 18 percent before the election. 
So what the Government is essentially buying into here is a doubling of the current level of gross Crown debt in terms of relative impact on the Government balance sheet. That is a big number. It gives the lie to the Government’s protestations that it cannot afford adult and community education because that cost $13 million not $50 thousand million. It puts the lie to the supposed blow-out on accident compensation a supposed deficit of around $2 billion that is actually running at a cash surplus of around $1 billion positive. But either way that cannot matter so much because the Government has just spent $50 thousand million of taxpayer money subsidising big polluters. 
But even then for the sake of argument let us give the Government the benefit of the doubt. The next stage of the Government’s argument is this: it is not really real money. It is just play money—think Monopoly. There is a problem with that argument because New Zealand the Crown has ratified an internationally binding treaty obligation under the Kyoto Protocol. We all collectively owe it to the United Nations if we run short of net carbon credits—period. Therefore we will have a liability— 
Hon Dr Nick Smith 
: You don’t understand it. 
Hon DAVID CUNLIFFE 
: I said “net” I say to the Minister in the chair. The Minister is welcome to explain that; I hope he will take two or three calls. 
But even if it were Monopoly money then the final stage of the Government’s argument is this: because this will not necessarily be negative from a zero-tax position we do not necessarily “owe” it but it might instead mean we are not spending it on something else and there are two problems with that. Firstly one cannot say in public accounting that this tax dollar goes to that expenditure. It all goes into one central pot and it is incontrovertible whether the number is $50 billion or $110 billion that it goes out of that pot and our net position will be that much worse off relative to where we would have been under the existing scheme. 
It is then a second order discussion in terms of where we start from with our other fiscal assumptions. Any Government by 2050 will face hard choices. It will have a lot of retired people to support. It will have a huge need to invest in environmental technology and climate remediation and adaptation. All of that will have to be paid for and that is part of the reason that we need fiscal flexibility at that point. That is very very important. 
So this is real money. It is a real trade-off. It is at least $50 thousand million by 2050 which is tens of thousands of dollars at least per man woman and child. It really matters and it buys us—what? It buys us less than a 1 percent reduction in net emissions from agriculture and heavy industry—less than 1 percent. 
The Parliamentary Commissioner for the Environment said that based on the analysis and the numbers there is no way these provisions will achieve even the Government’s own paltry target. Even on the Government’s own analysis even on the Government’s own design even on the Government’s own target by several independent authorities it cannot and does not work. So why are we here on the eve of Copenhagen with great uncertainty still about Australia? Why are we passing this bill in urgency when it is a complete fiscal shambles? I will talk again later. The process has been a shambles.