Douglas Roger: Address in Reply 
Douglas Roger: Address in Reply 
[Volume:652;Page:1169] 
Hon Sir ROGER DOUGLAS (ACT) 
: 
 Predictions of no economic growth in 2009 have moved from being the worst-case scenario to being a reality facing New Zealand. As the truth of the recession and higher unemployment hits home politicians and households have become alarmed. Although right to be concerned about our economic prospects New Zealanders are wrong to see our woes as largely driven by the global crisis. The challenges that New Zealand will face due to the international crisis will no doubt be great but we must not be fooled and we must not fool ourselves. 
New Zealand has been in recession since the March 2008 quarter. We were in recession before the fall-out from the global financial crisis arrived on our shore. We were in a bad economic situation and the financial crisis has simply made that situation worse. Today I will set out some of those economic troubles and if I can touch on how we might redesign our tax and welfare system to achieve a high-growth low-tax welfare State. 
First let us consider the deteriorating economic situation after 9 years of Labour control. In the private sector our current account has ballooned to the largest deficit since 1975. The large increase in the current account deficit—now equal to 8.5 percent of GDP—occurred despite New Zealand’s having the most advantageous terms of trade that we have had since the 1980s. On the household level the situation does not look any prettier either. During Labour’s rule household income did increase but it was largely driven by people working harder rather than working smarter. Our labour productivity growth today is lower than it has been at any time since the early 1980s. Low productivity growth is causing low wage growth and we have now become one of the lowest-growth countries in the developed world. There is only one way to increase wages and that is to increase productivity. Any increase that workers receive beyond productivity increases will merely exacerbate unemployment. 
But while household incomes have not risen significantly household debt certainly has. Despite slow wage growth we have continued in New Zealand to live beyond our means. To finance our wants we have turned to debt. Household debt has soared to 150 percent of disposable income. With cheap credit we mortgaged our houses to buy consumer goods. With the prospect of increased unemployment many families will struggle to pay the interest on their debt. That is the economic situation in the private sector. 
Let us turn and examine the public sector to see what kind of fiscal situation we face there. When Labour was elected in 1999 the New Zealand economy was rapidly recovering after the Asian financial crisis. Growth had been high during the 1990s and was expected to continue to be high. The solid economic framework New Zealand had developed during the reforms of the 1980s and early 1990s ensured that we would continue to grow. The opportunities that this presented were squandered in the 9 years of an interventionist Labour Government. Labour embarked on a massive expansion in the breadth and depth of Government services. Whenever spending increases we must ask ourselves whether the cost is worth the benefits it provides. Perversely Labour measured the benefits by how much taxpayers’ money it spent. It turned waste into a positive. Despite warnings from Treasury that much of the spending was of low value the Labour Government continued to take money from taxpayers only to filter it back to them through incentive-destroying schemes. 
The books are now in the red and the Government has joined New Zealand households in indebtedness. At a time when international credit is particularly tight the new Government has announced plans to borrow and spend on infrastructure projects. We have now been put on notice that our credit rating may be downgraded. Investors see our debt as risky; they fear that we will default. Labour let the softness of its heart spread to its head. We must put a stop to this situation. We need to unite as a country behind a policy goal. That goal should be to lift our growth rates and provide opportunities to those on all income levels. Policies should be judged not against their intention but against their effectiveness in achieving that goal. 
It is worrying for New Zealand however that most politicians are continuing down the path that has led us to the situation we are now in. The last election represented a choice between more spending or more spending and lower taxes. We offer a third option: less spending and lower taxes. National purports to represent limited government but it does no such thing. The size of the Government is determined by the amount of Government spending not by the amount of Government revenue. All Government spending must be paid for ultimately by taxpayers be it through current or future taxes. In that sense the size of the Government is set to grow under National. The latest Budget Policy Statement from Treasury shows core Government expenses will increase from less than 30 percent of GDP to 35 percent. If we use the broader OECD analysis and include local government that figure increases to 45 percent. 
In other words the tax cuts are currently being financed by higher Government borrowing which will be paid back—with interest—by future generations of taxpayers. We privately mortgaged our houses under Labour to buy consumer goods. The Government is now mortgaging our children for the next round of spending increases and the response from our children is clear. They are leaving our shores in ever-increasing numbers to seek higher-paying jobs elsewhere. Unless tax cuts are matched with cuts in Government spending we are merely redistributing the tax burden across time. 
The lack of vision is clear when we examine the ideas that some politicians have come up with to deal with the financial crisis. With unemployment set to rise rapidly the Government announced a temporary benefit scheme for people with mortgages. The Government in other words has resigned itself to increases in unemployment. Although the vision of most politicians is lacking we do not have these problems because of politicians. Politicians—and we are all politicians in this Chamber—merely mirror the sentiments of New Zealand voters. As citizens we have become more concerned with dividing the pie than with growing it. We have continued to sample the free lunch that politicians on both sides of the House have offered us but it is now obvious that the price we are paying has become too high. The price will be higher still for future generations. The reality is that we have only ourselves to blame. 
As voters we seem to have bought the false notion that we can be made wealthy through the Government. Elections have become an opportunity for politicians to promise to take more money from us only to give it back to us in another way—as a gold card for superannuitants a tax credit for working families or an interest write-off for students. If each of us pretends that we can somehow be made wealthy through taxing others then we in New Zealand are destined for poverty. We are increasingly relying on others—be they foreign lenders or domestic taxpayers—to sustain our way of life. The problems we face are many and great but we should not give up hope.