Cunliffe David: Public Finance (Fiscal Responsibility) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Cunliffe David: Public Finance (Fiscal Responsibility) Amendment Bill — First Reading 
[Sitting date: 04 December 2012. Volume:686;Page:7062. Text is incorporated into the Bound Volume.] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to speak to the Public Finance (Fiscal Responsibility) Amendment Bill and to concur with colleagues that the Labour Opposition will be supporting the bill to go to the Finance and Expenditure Committee. But the select committee will have quite a job to do because there are a number of interesting kinks in this draft that may well need ironing out. In my remarks tonight I propose to briefly summarise what is in the bill what is not in the bill what it will not do and what are some potential fish-hooks that the select committee may wish to consider. 
In line with colleagues I can say to the House that the Labour Opposition would most definitely have opposed any version of this bill that contained a mandatory or rigid fiscal cap. The reason for that is quite simple. If it were set at a level where it actually had some practical effect—that is it was able to bite against fiscal policy in the future—then it would create an ideological barrier to a potentially appropriate response to circumstances that could not be foreseen at the time of writing. Who in 2004 knew that the global financial crisis was going to happen in 2008? And who knew that the Christchurch earthquakes were going to happen before they did? Christchurch was not even considered a high-risk zone yet that is a $30 billion problem which the Government has quite rightly had to invest significant fiscal resource in solving. So the fiscal cap was very bad policy. Even Peter Dunne described it as “an unnecessary right-wing agenda” which the National Party had introduced simply pertaining to its coalition agreement. Mr Dunne in a flash of sanity and courage said he would not vote for the bill. Hence the cap is no more and good job too. 
We would also have opposed some of the language in earlier drafts of this bill. We do appreciate that the Minister did through his officials consult with the Labour Opposition and that there has been serious discussion about the content of the draft and we wish to acknowledge that. We think the current draft is much better than the early draft and I thank officials for their role. The early draft flew in the face of precedent in the UK and in Australia and contained language that would have biased the Act towards a very fiscally conservative—an unduly fiscally conservative—standpoint rather than having the degree of balance that the current draft has. We think it is a substantial improvement. That is not to say that the select committee upon taking submissions might not further improve it. 
So what is new in the bill? There are three new principles espoused for what fiscal responsibility should mean to any Government—and I mean any Government because this is a long-term piece of legislation that will guide and in fact bind both sides of the House. The first principle is that fiscal policy must have regard to monetary policy. As previous speakers have said who can argue? It is implicit anyway and it is one of the key reasons why the Labour Party has supported a capital gains tax—that is to take some of the heat out of the already re-exuberant property roller coaster and thus to take some pressure off interest rates and to allow the Reserve Bank to govern for a more appropriate nationwide cross-sectoral balance of stimulus and retrenchment. 
But beware an auto-pilot response because there are some on the far right of politics who say that whenever you cut Government expenditure GDP will increase. President Reagan imported that argument from a Professor Laffer. It was known as the Laffer curve. The monetary policy response to a tight fiscal stance would be so wonderful that cutting Government expenditure would indeed grow the economy. The problem is the Laffer curve never worked. There was no evidence in practice. 
To the second point to formulate fiscal strategy with regard to the likely impact on present and future generations we say “Exactly.” That is why we have championed the sustainability of superannuation and an aggressive long-term savings plan similar to Australia’s. 
So what if those are the three new principles are the fish-hooks? The first one is section 26G(1)(a) of the Public Finance Act. It says: “reduce total debt to prudent levels so as to provide a buffer …” and until you have done that you have to spend less than you take in taxes. Here is the problem: total debt is 85 percent private debt and only 15 percent public debt. So what this provision says is that until we get private debt down the Government has to keep cutting the fiscal spend. That is simply illogical and I commend that to the select committee—I am getting the time signal here. 
Mr DEPUTY SPEAKER 
: Yes time is up.