Twyford Phil: Spending Cap (People’s Veto) Bill — First Reading 
Twyford Phil: Spending Cap (People’s Veto) Bill — First Reading 
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PHIL TWYFORD (Labour) 
: 
 Normal transmission has been resumed in this House. I found it deeply unsettling in the last debate to hear one Labour speaker after another get up and give praise to Rodney Hide. It was very very unsettling and concerning to a Labour member of Parliament to hear one speaker after another on this side of the House praising Rodney Hide for his good stewardship of the Local Government Borrowing Bill. We are now back on much more familiar territory. We are here to oppose and criticise the nutty extreme ideas that have been Rodney Hide’s hallmark since he came to this House. The bill before us now the Spending Cap (People’s Veto) Bill is another batty idea borrowed from the extreme right internationally. It seeks to institutionalise and to structure into our political system a cap on Government spending. 
Amy Adams 
: Where’s the finance team? Is this it? 
PHIL TWYFORD 
: Amy Adams is sitting in the back row there chipping away but she knows that National does not support this bill. National members think it is a nutty extreme bill because it is really— 
Hon Member 
: Amy doesn’t. 
PHIL TWYFORD 
: OK so Amy supports it. Now we know where Amy stands on the political spectrum within the National Party. 
Mr DEPUTY SPEAKER 
: Full names. 
PHIL TWYFORD 
: Thank you Mr Deputy Speaker. I want to say before we leave the subject of Rodney Hide that I was disappointed that in that speech there was not more personal content more anecdotes and more recollections of his time in this House. Rodney Hide is one of the more interesting people that have passed through this House in recent years and it is a matter of some disappointment to us that we are being denied our democratic right to hear his valedictory. That is a great loss to this House. I think he would have some very interesting stories to tell and some very amusing anecdotes. 
Hon Ruth Dyson 
: But he might be back. 
PHIL TWYFORD 
: He might be back; it is true. It is hard to know what is happening with the ACT Party list these days. He could well be back. There could well be a counter-coup any day now. In fact the Spending Cap (People’s Veto) Bill could be a Trojan Horse for Rodney Hide’s counter-putsch. However I will address my comments to the Spending Cap (People’s Veto) Bill. 
It will not surprise anybody in this House least of all Rodney Hide that Labour is opposing this bill. We do not think spending cap legislation is needed and there is plenty of evidence from overseas where it has been tried that it simply does not work. In the course of this debate we will be discussing some notable examples of countries that have a spending cap that simply has not worked. 
This kind of approach—a spending cap—is no substitute for the normal democratic process where elected leaders and citizens work out between them the appropriate parameters for Government spending and taxation. Nothing like a spending cap can really achieve the kinds of aims that it has. It is an attempt by stealth to systematically and drastically cut Government spending and we think that would be damaging to the economy and damaging to New Zealand. 
Under this bill core Crown expenditure would be capped in dollar terms at the level of the previous year’s spending prior to the law coming into effect and increases would be allowed only at the rate of inflation plus population growth. The limit can be bypassed by a referendum or by the use of emergency provisions. We will see that there are other examples—Japan most notably I think—where such a spending cap is bypassed on an annual basis. If the cap was effective—and we think that is a big if—it would result in Government spending as a share of the economy declining over time and would lead to severe spending restraints. 
If National and ACT really want to slash Government spending then we think they should be much more honest and upfront about it. They should go to the people and say: “This is what we want to cut and these are the things we are going to cut—superannuation health education.” Why not just be upfront and honest with the New Zealand people and campaign on that basis? But this bill is a sneaky attempt to slash spending and to roll back the State. I do not believe for a moment that that is what New Zealanders want. 
The impact this bill would have on superannuation is one of the illustrations of how misconceived it is. The allowance to increase Government spending at the rate of inflation plus population growth deliberately ignores the fact that in the case of superannuation because of the ageing population and increasing health costs those things are increasing much faster than the rate of inflation and faster than population growth. Under Rodney Hide’s bill they would be drastically cut back. 
We believe that a much better solution is to have those trade-offs those dilemmas discussed and debated and decisions made in the course of the democratic process. For example the spending cap would rise 8 percent by 2015 but the cost of superannuation will rise by 22 percent. What would National do if it had the opportunity to pass this bill? What would it cut to make up for that crunch? 
In very recent history we have an example of a Government that cut back the national debt—Government debt. Over the period that the fifth Labour Government was in office Government spending in the first year was 30.9 percent of GDP. When the fifth Labour Government left office in 2008 it was 31.1 percent. So there was basically no change in the level of Government spending as a share of the economy. That is an illustration that this issue is about political will. It is about the democratic process. It is about good policy and good economic stewardship. 
Under National spending has skyrocketed to 36.4 percent of GDP. At the same time the Government has cut revenue particularly by means of tax cuts that have disproportionately benefited the top end of New Zealand income earners. It has opened up a massive hole in the Government accounts and it has led to National borrowing $36 billion in less than 3 years. 
I mentioned Japan before. That country is a really good illustration of what we are talking about with the Spending Cap (People’s Veto) Bill. Japan has had a spending cap since World War II but that has not stopped the country from amassing a debt equal to 200 percent of GDP. Every year the Japanese Government gets an exemption from its spending cap legislation from the Parliament. 
This bill is ideological and ill-thought-through legislation that even Treasury opposes. National deep down knows that it is not a goer. It is basically a going-away present to Rodney Hide. National is paying lip-service to the confidence and supply agreement otherwise it would have done it within the 6 months that it promised in the confidence and supply agreement. But National knows that this bill will not be passed in the term of this Parliament and really it is the equivalent of a bunch of flowers that it is giving to Rodney Hide in lieu of his valedictory speech. 
I will comment on what Treasury had to say about this bill. It insisted on a number of modifications which were made to this bill before it came to the House. Even Treasury thought it was an extremist and ideological draft law. Treasury said that it “does not support imposing constraints on the ability of the government to set fiscal strategy via hard parameters in legislation. A legislated spending rule which a government did not wish to be bound by could lead to efforts to circumvent the rule—potentially favouring certain types of decisions … and raising the risk of unintended or perverse outcomes.” 
One of the commonly found perverse outcomes of these kinds of spending caps is that they encourage Governments to meet their policy objectives through tax rebates. “To be effective”—Treasury says—“the fiscal framework needs to be reasonably stable over time. This criterion would not be met if a legislated spending rule was likely to be overturned shortly after its introduction because it lacked widespread and enduring political support.” That is exactly what would happen if this bill was passed. A future Labour Government would see it out the door straight away.