Copeland Gordon: Debate on Budget Policy Statement 
Copeland Gordon: Debate on Budget Policy Statement 
[Volume:606;Page:4008] 
GORDON COPELAND (United Future) 
: 
 I begin by saying that I am pleased to note that the 2004-05 forecasts indicate that the Government will be able to make a full contribution to the New Zealand Superannuation Fund. United Future supports that fund. Pension payments to retired New Zealanders are of fundamental importance if all of our elderly without exception are to be provided with at least a basic standard of living. I do not think any of us in this House would wish to contemplate a future where even a minority of our elderly would be left without the financial means to meet basic necessities such as housing heating clothing adequate food and the like. If that is so then I think it is a pity that this matter continues to be a political football with other parties in this Parliament either sitting on the fence or expressing outright opposition to the fund but without in so far as I know proposing a viable alternative. 
I had a personal preference for compulsory private superannuation but as we all know 92.5 percent of New Zealanders rejected that option by referendum. Given that reality I agree with Dr Cullen that the Government would stand accused of negligence were it not to address now the reality of our demographics and the enormously expensive future costs involved in the provision of a basic standard of living for future retirees. 
However despite the positive features of the Budget Policy Statement I continue to have concerns in a number of areas. The first of those concerns the balance sheet of the nation as distinct from the balance sheet of the Crown. I understand that during the Great Depression of the 1930s the Crown’s balance sheet was positive and its Budget was balanced. That historical example suggests therefore that we should not be lulled into a sense of complacency simply on the basis that the Crown’s own books are in good shape. 
I want to spend a moment just examining the balance sheet of our nation. In terms of net external liabilities our net debts—something around $80 billion—New Zealand is the most indebted nation in the OECD. That level of indebtedness is nudging towards 65 percent of our gross domestic product (GDP). The Reserve Bank has told me and the Finance and Expenditure Committee that that level of debt is “very high in comparison to other OECD countries”. So should we be concerned? I think the answer is yes at least in the sense that the owner of a freehold house is patently in a much better financial position than the owner of a house with a significant mortgage. In our case we are by analogy a nation with a significant mortgage. 
If people have a mortgage the first call on their income is its servicing by way of interest and capital repayment. The same is true for a nation. A significant first call on our national income has to be paid overseas to service both the interest on that $80 billion—around $4.8 billion per annum if I strike an average interest rate of 6 percent—and the repayment eventually of that $80 billion in capital. Those figures remain the same regardless of the fact that as is now the case in New Zealand most of that debt is owed by the private sector rather than by the Crown.  
Of course if I knew with certainty that the bulk of that debt had been borrowed by businesses as part of a well-thought-through gearing strategy to increase the wealth of the nation the high level of debt might of itself be a positive rather than a negative for New Zealand. However the Reserve Bank tells me that $23 billion in net terms worth of that private sector borrowing from overseas sources has gone into non–revenue-producing assets such as private cars and housing. To that extent the “mortgage on the house” analogy is therefore a reality and obviously New Zealand’s net worth would be better if that debt could be paid off. 
There is another aspect that should also be mentioned. Since New Zealand has net external liabilities of $80 billion obviously there is ample scope for the New Zealand Superannuation Fund to be invested predominantly into this country. Commentators have said that the New Zealand market is too small but how can that possibly be the case if we have already borrowed $80 billion worth of debt from overseas whilst at the moment the Government Superannuation Fund and the New Zealand Superannuation Fund combined have assets of around only $6 billion or so? 
Furthermore as the borrower always pays interest at a higher level than the lender with the difference becoming the banker’s margin then we increase the nation’s financial risk if in net terms we are borrowing in order to lend. That is the road to poverty not prosperity. 
We can of course also improve the balance sheet of the nation and our net indebtedness by encouraging a higher level of private savings. I believe that front-end incentives will need to be given to change our present low-savings culture. The Minister has voiced his doubts about whether that would be effective. He said in the House recently that the question is not whether people want them but whether they would work. In response I point out that they are a feature of all the other OECD nations where the savings level is appreciably higher than in New Zealand. I believe that the only other exception is Portugal. 
Also I can say that it was tax incentives that tipped the balance for me in my 20s as a young husband and father in favour of joining my company’s superannuation scheme. Joining the scheme involved considerable financial sacrifice as I had in order to attract the employer’s contributions to pay in 5 percent of my gross salary. I would not have done so but for the tax rebate that was then available. 
The Government Actuary’s report for the year ended June 2002 indicates that the percentage of people in the labour force who belong to employer superannuation schemes has dropped from 22.6 percent in 1990 to 14.6 percent 11 years later. I do not believe that we will see those trends reversed without front-end incentives. I hope that the Minister’s doubts can be resolved in favour of boosting private savings by front-end tax incentives. 
I believe that we must look carefully at the issues I am raising. The Budget Policy Statement forecasts a net cumulative increase in the current account deficit of $31.5 billion to 2007—money that the Crown will need to borrow. That will further increase the debt on both the Crown’s and the nation’s balance sheet. Between 2004 and 2007 the cumulative increase in the current account deficit will be around 6 percent higher than GDP growth over that same period—a worrying trend indeed. That alone would see New Zealand’s net debt balloon to 71 percent of GDP. If at the same time private borrowing continues to grow at a faster rate than GDP—and that has certainly been the case in recent years—we will see net debt well over 80 percent by 2007 which is just 5 years away. 
The Reserve Bank has drawn attention to the fact that the high level of external private sector debt in conjunction with a relatively low level of financial assets heightens New Zealand’s vulnerability to adverse events whether of an external or an internal origin notwithstanding the many positive features of the macroeconomic policy framework and the economy. Those warnings were given to us by the former Governor of the Reserve Bank Dr Donald Brash in a speech that he made on 25 January 2002. Now if the Reserve Bank was worried in 2002 when our debt level was about 65 percent of GDP how much more should we be concerned when on the basis of this Budget Policy Statement we are heading towards an 80 percent net debt ratio by 2007. In my view that should signal that the policy changes I have mentioned should be made sooner rather than later. 
Secondly I want to mention child poverty in New Zealand. I believe that this year rather than next the Government should move to adjust family support and family tax credit payments for inflation since 1998. I have some sympathy with the minority view expressed by the Green Party. However I must say that I am delighted to note that the Budget Policy Statement includes the setting up of the Families Commission. Really it is time we stopped pretending that the State can somehow be a surrogate father and we need to begin to rebuild New Zealand families and communities so that the financial surplus which we are forecasting can then be worn as a badge of honour. It cannot at the moment when so many New Zealand children are worse off now than they were in 1998.