Groser Tim: Debate on Prime Minister’s Statement 
Groser Tim: Debate on Prime Minister’s Statement 
[Volume:629;Page:1304] 
TIM GROSER (National) 
: 
 As I have listened to the speeches from the Government from the Prime Minister’s opening comments through to what we have heard today I believe that it is becoming palpably clear that this Government has run out of soft options and that that is beginning to tell—it is beginning to show. It has run out of soft options in terms of underlying ideas it has run out of soft options in terms of its internal political arrangements and most important of all it has run out of options in terms of economic management. It has no real vision as to how to lead this country and discharge the responsibility it asked the New Zealand electorate to give it in the course of the last election. 
Let me start with the level of ideas and I want to pick a couple of examples of what we have heard in the last 2 weeks to make my point. First of all the Minister for Economic Development on the subject of the New Zealand exchange rate—and I will come to the economics of that soon—said to the  
New Zealand Herald  
on 17 February: “In fact I hope and expect that in the medium to long term the dollar will be higher than it is now.” In a moment we can deconstruct the economics of that which are a little more complex than the Minister appears to realise but I particularly liked the immediate reaction of the Chief Executive of Business New Zealand Mr O’Reilly who was asked to give a response given that many of his members are suffering from a combination of an obvious slowdown in the economy high interest rates and if they are in the traded sector—the import-competing or export-oriented sector—that over-valued exchange rate of ours and was hoping to see at least some signs of recognition from the Minister. 
When asked for his view Mr O’Reilly said he thought the Minister’s comments were probably—and I think this is a wonderful word—“aspirational”. Now the word “aspirational” is of course straight out of a speech and text from  
Yes Minister 
—the type of word that an important lobbyist such as Mr O’Reilly or a senior official as I was until I entered this Parliament uses when he or she wishes to describe the Minister as barking mad but simply cannot afford to say that in terms of their ongoing relationship. 
Let us examine the economics of that. What I imagine has happened is that we are in the phase of this Government when it has to start defining problems it has no means of dealing with as solutions and I imagine that the Minister has received some type of briefing paper from Treasury or the Ministry of Economic Development that will have stated something along the following lines: “Under certain circumstances”—and they may even have used “ceteris paribus” if they were very unwise and we do not know whether the Minister has had the benefit of a classical education—“an appreciating nominal exchange rate and an appreciating real exchange rate may in fact raise living standards.” Now this of course is unquestionably correct. But there are a set of mightily important conditions behind the phrase “other things being equal”. 
Let me explain the point a little bit more deeply by reference not to economic theory but by a comparison between Switzerland where I spent 9 years of my life and New Zealand. So we have the real Switzerland in the Northern Hemisphere and this country which has from time to time aspired to be the “Switzerland of the South Pacific”. Of course back in 1950 we and the Swiss were third equal in terms of per capita income levels. Since then they have left us in their dust. Things have improved a little bit because of fundamental economic reforms not the sunny election of the Helen Clark Labour Government in 1999. But we still have a long way to go. 
The Swiss have left us in the dust because of three principal factors. First throughout the 1960s and 1970s Switzerland unlike New Zealand and indeed most of the developed world had inflation under relatively strong control; second it had a growth rate of around 2 to 2.5 percent—not much above the OECD median but about twice as much as our own growth rate over that period; and third it had an appreciating exchange rate. The question is: why could Switzerland support an appreciating exchange rate? It is because Switzerland unlike New Zealand is an export machine. Some real structural weaknesses in agriculture aside it has a set of financial services companies and engineering companies that produce consistently large current account surpluses. Under those conditions an appreciating exchange rate will indeed raise living standards and has indeed raised them. 
But I can see what has happened. This is a classic case of a little learning being a dangerous thing. The Minister for Economic Development who should be deeply concerned about the imbalances facing the New Zealand traded sector and deeply concerned to find long-term solutions to New Zealand’s continual incapacity to pay its way in this world grasps hold of this straw like a drowning man and comes out with this frankly absurd statement that he wants to see the exchange rate even higher. It is absurd not in terms of some idealised set of circumstances but utterly absurd in terms of the underlying situation facing this country this Government and his ministerial responsibilities. I have an analogy in mind. My youngest daughter has just turned 7. I could say that one day I hope she may win the Nobel Prize in mathematics. But there are two problems with this. One is that there is not a Nobel Prize in mathematics for fascinating reasons better explained over a drink. 
Hon Maurice Williamson 
: Make it a white! 
TIM GROSER 
: Yes it is a case of cherchez la femme exactly! The second reason is that before I even start to talk to her about such aspirational ideals I really want to make sure she has nailed down her eight-times table. That basically is the position of the New Zealand export economy and the Minister’s ministry. There are some fundamental things that have to be done to promote a business-friendly future for this country and until this Government starts to grapple with the real next reform agenda to talk about an appreciating exchange rate is dreaming in nana land. 
But the Minister is not the only person who I think has recently indicated the poverty of ideas of this Government. My colleague Mr Power was on the back of the Minister of Corrections on this rather naive view that he brought back from the Nordic countries so he looks at our incarceration rate—and let me say I find the fact that we have the second-highest incarceration rate after the United States a shocking issue facing this country one that we should be trying to develop bipartisan and constructive long-term solutions to but simply letting go a third of the prison population to solve it shows that this Government has simply run out of ideas and is clutching at straws. In fact if we put these two creative thinkers together the Minister for Economic Development and the Minister of Corrections they might even come up with the right solution to our current account deficit which would be: “Why don’t we label exports ‘imports’ and imports ‘exports’ and there we are we have a current account surplus?”! I mean I am sorry but we need some higher-quality thinking out of people who are responsible for New Zealand rather than these dimly understood phrases from our Ministers. 
Secondly in terms of economic management I am just staggered by what the Prime Minister gave up as her vision for New Zealand. First of all in terms of the political reaction to it let me quote for example what might seem on one level a public relations triumph for the Prime Minister. For example the Employers and Manufacturers Association (Northern) Inc. congratulated the Prime Minister on putting the emphasis first and foremost on business success and the Auckland Chamber of Commerce stated: “The language is right and Government’s intentions are very clear and believable”. There is only one problem; I do not know whether to put the emphasis on “intention” or “believable”. The point here is that what the Prime Minister has been saying is exactly what she said in her Knowledge Wave 2001 conference which I have here about economic transformation. It is exactly the same message that she gave about infrastructure before she had her personal epiphany last week in her Prime Minister’s statement—suddenly realising that something had to be done. What we will hear more of from this Government is nothing more than the same rhetoric but without the political capacity to deliver. I am afraid that I have to reach for that cliché to sum up my view of the next 2 years if the Government can survive as long as that: this Government yes it can talk the talk but I am sorry it does not have the political capacity to walk the walk.