Brash Don: Debate on Budget Policy Statement 
Brash Don: Debate on Budget Policy Statement 
[Volume:629;Page:1585] 
Dr DON BRASH (Leader of the Opposition) 
: 
 The Budget Policy Statement finally dashes any hope New Zealanders might have had that this Labour Government cares about the gap between living standards in New Zealand and living standards in Australia. It dashes that hope. In 1999 after-tax incomes in Australia were 20 percent higher than after-tax incomes in New Zealand. Today after-tax incomes in Australia are 33 percent higher than those in New Zealand. All the indications are that over the next 2 3 or 4 years that gap will continue to widen. The Australian Government will be cutting taxes; the New Zealand economy will be growing more slowly. 
Equally worrying is the fact that over the last 5 years growth in output per person growth in productivity has been a miserable 0.8 percent per annum in this country—substantially lower than in Australia. Everybody knows even if Helen Clark and Michael Cullen do not that we will never overtake Australian living standards unless we narrow that gap in productivity and right now we are not beginning to do so. So on present trends we are going backwards vis-à-vis Australia and is it any wonder that we have an increasing outflow of our brightest and best New Zealanders across the Tasman? Over 600 Kiwis are leaving for Australia every week. 
It is no wonder also that reported just this week was the worst trade deficit in New Zealand’s history since 1976—in 30 years. It is the biggest-ever deficit in absolute terms and the biggest deficit in terms of the relationship to exports in 30 years. Over the last 5 years we have seen Government spending and Government hiring growing much faster than the rest of the economy and partly as a consequence we have seen employment in the sectors that are not generating exports grow strongly by 25 percent over the last 5 years. We have seen growth in employment in agriculture fishing and manufacturing actually shrink by 1 percent over the last 5 years. 
Why is that? In large part it is because Government spending has been growing too fast. While value added has been growing strongly in the domestic parts of the economy—the non-tradable parts of the economy—we have seen that value added in the primary sector has grown by just 1 percent over the 5 years to June 2005. There has been 1 percent real growth in the primary sector. It is simply not true that exports have not been growing because of the volatility of the New Zealand dollar. The New Zealand dollar is not more volatile than other major currencies and that has been established by the Reserve Bank over many years. The main reason the export sector has been growing too slowly to keep our international trade in balance is that Government spending has been growing too quickly and the non-tradable parts of the economy have been growing too quickly. The Reserve Bank has had to increase interest rates. As a consequence the exchange rate has been high and that has put pressure on exports. It is not the volatility of the exchange rate affecting our export sector; it is the speed at which Government spending is growing. 
What does the Budget Policy Statement say about the future? It says there will be slower growth at 2.8 percent over the 5 years to March 2010 than in the 12 years since 1993—that is what the Budget Policy statement says. There is no sign at all that the Government has any idea how to make that growth faster. 
Mr Jones indicated in his speech the major initiatives likely to be in the Budget. What are they? We will have interest-free student loans. Well that sure as Hanover will not increase growth at all—not at all. It will have no effect on growth. Why? Because the Budget Policy Statement itself says the number of people in tertiary institutions will actually decline slightly. It will be lower in 2010 than it is now. We will be dishing out $1.5 billion in new loans in 2010 with fewer students in 2010. There is nothing there for increasing growth at all. 
The second thing the Budget Policy Statement has is a big amount of money being spent on the Working for Families package. There may be some benefit in that for many families— 
Jill Pettis 
: And they will spend it in towns. 
Dr DON BRASH 
:—but it is bought at the cost of significantly higher effective marginal tax rates which that member may not understand which will be very high over a very wide range of low and middle incomes. There is nothing at all for growth in that package. It may make Labour voters feel good but it sure as Hanover will not do anything for economic growth. 
The third thing Mr Jones talked about was the fact that the Budget will increase the entitlement for New Zealand superannuation from 65 to 66 percent of the average wage for a married couple. That may very well be something that is very constructive for older New Zealanders but it is not at all relevant to growth. 
It is a sad document. I am not even at the moment talking about the imminent slow-down of the economy which is a real challenge to the economy in the short term. Many people will lose their jobs and many businesses will fail and that is a serious issue. But much more serious is the fact that the trend growth rate of this economy will be slower in the next 5 years than it was in the last 12 years. This Government has absolutely no answer to that at all. 
Lindsay Tisch 
: Devoid of ideas. 
Dr DON BRASH 
: It is devoid of ideas as my friend Lindsay Tisch points out. This Government has been in office more than 6 years and the forecast growth rate is markedly slower—not just in cyclical terms—for the next 5 years than it has been in the last 12 years. That is the most severe indictment on this Government’s performance. After 6 years in office growth is forecast to be slower in the next 5 years than it has been in the last 10 or 12 years. 
Once upon a time some New Zealanders believed Helen Clark and Michael Cullen when they talked about raising New Zealand living standards into the top half of the OECD. Once upon a time some New Zealanders believed Helen Clark and Michael Cullen when they said they were proposing to close the gap between New Zealand and Australia. Once upon a time some New Zealanders believed Helen Clark and Michael Cullen when they talked about economic transformation and raising productivity. Once upon a time some New Zealanders believed Helen Clark and Michael Cullen when they said they were aiming for growth of at least 4 percent per annum. Once upon a time some New Zealanders believed in the tooth fairy.