Norman Russel: Public Finance (Fiscal Responsibility) Amendment Bill — In Committee Third ReadingText is incorporated into the Bound VolumeNorman Russel: Public Finance (Fiscal Responsibility) Amendment Bill — In Committee Third Reading[Sitting date: 27 August 2013. Volume:693;Page:12909. Text is incorporated into the Bound Volume.]Dr RUSSEL NORMAN (Co-Leader—Green): I rise on behalf of the Green Party to speak on the Public Finance (Fiscal Responsibility) Amendment Bill in its thirdreading. The Green Party supports this legislation. It is essentially a good bill. What I think is quite interesting about this bill is that the Government is essentially hoist on its own petard because when you look at the principles that the Government wants to introduce into the Public Finance Act those principles are completely at odds with the Government’s own fiscal strategy. Let me give a few examples. The Government wants to introduce a new paragraph into the principles of responsible fiscal management in section 26G of the Public Finance Act in clause 4: “when formulating revenue strategy having regard to efficiency and fairness”. I think that this is a very sensible introduction of a principle into the Act.However what you have to ask yourself is how on earth it can be fair that the Government as part of this cycle after 2008 gave away very large tax cuts to the wealthiest 10 percent of New Zealanders. How can it possibly be a fair revenue strategy to introduce as this bill rightly does the principle of fairness when putting together revenue strategy to give the wealthiest people in New Zealand very large tax cuts while increasing GST of course for those who are on lower incomes? When you look at the impact of the Government’s tax cuts it is the wealthy who did extremely well out of those tax cuts and the poor who got very little indeed from those tax cuts. How could that be considered introducing an element of fairness into the tax system? It seems to me that this is a good principle but where is the fairness in the Government’s own revenue strategy?To consider another issue what about a capital gains tax? We know that New Zealand is one of the very few OECD countries if not the only OECD country not to have a capital gains tax and the Greens have supported for many years a capital gains tax excluding the family home. The reason why this is an issue of fairness is that the very wealthy get most of their income from capital gains. So when you look at where people get their income from you will find that most people get their income from wages and salaries and they pay taxes on those. That is what the PAYE system is—pay as you earn. You pay taxes in income taxes on your salary. If you get income from capital gains—so if you own large numbers of shares those shares are worth more this year than they were last year and let us say you sell those shares and you make a big capital gain when you sell those shares—you do not pay tax on those capital gains. That is tax-free income.Why is it that we have a tax system whereby the primary kinds of income for the very wealthy—which is capital gains because they do not get most of their income from wages—pay no tax? Why is it that those on that kind of income pay no tax whereas it is ordinary working people who have to pay the bulk of the tax which they pay through their wages and PAYE taxes? It seems to me that if you were to develop a tax system based on this principle of fairness that the Government wants to introduce in this bill and which I think is very sensible surely a fair tax system would also tax capital gains so that the very wealthy who make most of their income from capital gains would in fairness pay tax on those gains.There is another principle that the Government is proposing to introduce here which I think is a very good principle: “when formulating fiscal strategy having regard to its likely impact on present and future generations;”. I think it is really important that we have a long-term horizon when developing fiscal strategy. In this respect I think we need to ask ourselves the question of why New Zealand does not have a proper carbon tax or a proper price on carbon. We have the joke of the emissions trading scheme which is just the pretence a fig leaf of some kind of price on carbon and which has very little effect whatsoever on a real price on carbon. But if we had a proper price on carbon whether through a carbon tax or an effective emissions trading scheme then that would be good for future generations. Very shortly I will be attending an event puton out the front by Generation Zero that is exactly about the issue of climate change. Climate change of all issues you would have to say is going to have a massive effect on future generations. Human-caused climate change is accelerating and of course New Zealand’s greenhouse emissions are at an all-time high and this Government has removed most methods to control it.One method to control it is to put a proper price on carbon so that those who are emitting carbon would need to take into account the fact that they have to pay a price on it. For example right now Fonterra is talking about digging a new coalmine in the Waikato in order to use the coal in its production. It could equally replace that coal with say woodchips or alternative methods that have lower greenhouse emissions or carbon emissions but it is choosing not to do that because there is no price on carbon. It has no economic incentive to look at the alternatives to digging a dirty great coalmine as part of our clean green image—not. If under this principle that the Government is introducing we considered the impact of fiscal strategy on present and future generations then it seems to me a compelling reason to introduce a price on carbon so that future generations will not face the kinds of problems that they are very likely to face as a result of climate change.Let us remember that New Zealand is a very small emitter by global standards so we are entirely dependent on the rest of the world saving our bacon on climate change. New Zealand is entirely dependent on the big emitters making cuts but we cannot ask the big emitters to save us if we ourselves are not willing to take any action on climate change. We cannot protect future generations as this clause within the bill proposes if New Zealand itself does not take action on climate change. We cannot ask the big emitters the big polluters to save us which is essentially what has to happen with climate change if we ourselves are not willing to take any action on it. So I think this is a very good clause to introduce within the bill.One could likewise make the same argument about the tax cuts that put a huge hole in the Government’s fiscal position and of course became the justification for asset sales for the Government—that is it cut taxes for the wealthy and then it said: “Oh dear! There’s a big hole in the Budget. We’re going to have to sell assets in order to pay for schools.” But more of that later.The other issue of course that the Labour Party has drawn attention to is in clause 4 amending section 26G(1) and the introduction of new paragraph (f): “when formulating fiscal strategy having regard to the interaction between fiscal policy and monetary policy;”. I would have to say that I do not share the concerns that the Labour Party has raised in this respect. I think that the new paragraph is fine and I really do think that Labour has got that wrong.There is another part of this bill that I think is really good which is the introduction of the investment statement. This of course has been a useful innovation and it is important to understand how this would work. For example under the investment statement clauses basically the Government is required to present an investment statement which would look at the value of the Crown’s assets and liabilities to the House of Representatives. Let us look for example at the issue of asset sales within the context of the investment statement. The Government has just gone through with the Mighty River Power privatisation or partial privatisation and we got the annual results for 2012-13 from Mighty River Power within just the last couple of hours. What they show is that total shareholder return for Mighty River Power was 11 percent over the financial year 2012-13. Total shareholder return includes both the increase in the value of the equity and the dividends paid out. That was an 11 percent return from Mighty River Power. The cost of borrowing to the Crown over the same period was 2.9 percent.Let us remember that the Government told us that we had to go down the privatisation path to avoid debt. It had all sorts of nefarious reasons that did not really make any coherent sense but let us consider that particular argument. In order to avoid debt of 3 percent the Government sold shares in an asset that was returning 11 percent. I mean think about the business case. Here you are you have got this asset that is earning 11 percent and you say: “Well I want to sell this asset earning 11 percent in order to avoid debt that would cost me 3 percent.” What kind of business manager would come to you with a proposal like that? It is the kind of business manager whom you would immediately sack. It is the kind of business manager who should not be in the practice of providing advice around business.And of course Treasury documents and the Budget Policy Statement outlined exactly this case where they said that asset sales would increase the operating deficit because you would be selling assets with very good rates of return in order to avoid debt that has got pretty low cost. In this case we know now because we have got the actual numbers and we can quantify it that basically the sale of 49 percent of Mighty River Power is costing the taxpayer $2.3 million a week. That is the difference between what we could have returned on that asset the 11 percent as it has told us just today versus the 3 percent cost of debt. So because we privatised 49 percent of Mighty River Power—or rather the National Government did—it means that the Government’s position which would come up under the investment statement is $2.3 million a week worse off. That is why I think it will be very useful to have this investment statement and that is why we support this bill in order to make it clear what a terrible economic manager National really is.