Foss Craig: Debate on Budget Policy Statement 
Foss Craig: Debate on Budget Policy Statement 
[Volume:637;Page:7775] 
CRAIG FOSS (National—Tukituki) 
: 
 I think I may be the only member to have actually read the report on the Budget Policy Statement all the way through. I have not heard anyone pick up on the part I am about to read to members but I think there will be a lot of nods of agreement. It is a statement that should be considered in the context of 1999 which is when the problem started. Page 5 of the Budget Policy Statement 2007 the report so proudly presented by the chair of the Finance and Expenditure Committee Mr Shane Jones—and members should listen carefully to this—states that an inappropriate increase in taxation “would also increase the prospects for tighter monetary policy …”. The statement adds that that increase would place pressure on the exchange rate and adversely affect the export sector. Perhaps there might be a typo in there but if we look at an inappropriate increase in taxation in the context of 1999 we will see that the incoming Labour Government hiked tax rates. It did not need to increase taxation as we have seen it do year after year for the last 7 or 8 years. Surprise surprise—a billion dollars here a billion dollars there! Even Dr Cullen has not been able to spend it all. 
The point is that the problem started in 1999 when Labour became the Government and the document that has been tabled talks about an inappropriate increase in taxation. So perhaps the chair of the Finance and Expenditure Committee Shane Jones might want to address that issue later when he and the others come down to the House. I certainly hope Dr Cullen pays attention to it. 
The Budget Policy Statement is a sorry tale of two doctors. After I went through it—not quite line by line but pretty close to that—I was led as I am sure many other readers were to question which doctor is actually running the economy. Which doctor has responsibility for the prudent running of our economy? Is it Dr Cullen? Well he has responsibility for the supposed fiscal management of the economy. Dr Bollard has responsibility for the monetary side of the economy. But Dr Bollard has to take whatever Dr Cullen sends to him. Or to put it another way poor Dr Bollard has to go around cleaning up Dr Cullen’s mess—those little bits and pieces he leaves in the corner. He has to carry the can. Dr Bollard is forced to prescribe the diet pills to poor New Zealanders in order to treat Dr Cullen’s compulsive taxation disorder. Dr Cullen cannot help himself. He has to tax tax tax. The answer is only ever to tax. 
I was interested to hear Mr Hide speak of fairness. The Labour members opposite did not seem to understand what on earth that word meant. Dr Cullen is directly responsible for the core and persistent underlying inflation that is now in New Zealand. Dr Bollard mentions in the December Monetary Policy Statement that there is a worrying persistent core that is underlying inflation in New Zealand. If we delve deeper we find that most of it is coming from the expansionary growth—the loose fiscal growth—in the public sector. Dr Cullen is also therefore directly responsible for the probable increase in our interest rates mortgage rates and credit card rates come 8 March when poor Dr Bollard will have to try to alleviate the situation and prescribe some medicine for the mess and illness that results from what Dr Cullen is putting on New Zealand. 
An increase in interest rates has been forecast and most commentators believe it will happen—25 points on 8 March and 25 more points after that. That increase will lead to higher mortgage rates thereby making homes even less affordable. It must be noted that homes in New Zealand are almost the least affordable in the OECD. New Zealand has some of the highest interest rates in the OECD and those are the countries we compete directly against. So how on earth can our businesses and our people compete with strong competitors such as Australia when the cost of our capital the cost of our funding etc. is so much higher than theirs? 
Dr Bollard has repeatedly warned against loose expansionary fiscal policy—as recently as in the December Monetary Policy Statement—in writing in print and at various briefings and meetings he has given. Dr Cullen has repeatedly taxed taxed taxed and spent spent spent thus leading to the high inflationary state we currently find ourselves in and more important—and tragically for our economy—to higher inflationary expectations. That is what is leading to high interest rates and the high exchange rate—and all in this year which is supposed to be Export Year 2007. Companies that are trying to export are getting totally nailed on the cost of working capital. They get totally nailed when they convert back into Kiwi dollars. I ask my colleagues in the New Zealand First Party which promotes Export Year 2007 to ask the hard questions of Dr Cullen and to not let him get away with the rhetoric. 
It is precisely because of the loose spend-up and the overtaxation of the past 7 years that has created the pent-up pressure that is now starting to flow through into our economy. The Government has had a dream run on the back of rural New Zealand. My colleague Tim Groser pointed out the luck the Government has had and he is quite right; it has had a fair bit of luck. But the chickens are coming home to roost. 
Dr Bollard uses central bankers’ speak. It is very conservative. One has to kind of interpret between the lines. But the bottom line is that he is saying that the blame of New Zealand’s current situation—the problems of inflation interest rates and high overvalued currency—lies directly with Dr Cullen. And all Dr Cullen can do is thrash around looking for someone else to blame. He thrashes around with blunt proposals such as levies on mortgages. He wants to whack our mortgages up even higher even though we will have to pay a higher rate in a couple of weeks’ time. Any time anyone tries to address Dr Cullen’s issues he bullies them and accuses them of ideological burps etc. Yet these are learned people from Treasury the Reserve Bank and the Inland Revenue Department who are trying to cope with the mess he is leaving behind as he furiously writes cheques left right and centre and takes the money out of hard-working New Zealanders’ pockets. 
The inflationary chickens are coming home to roost on the head of Dr Cullen. I suggest he starts to wear a wide-brimmed hat. Dr Cullen has changed his tone over the last few years and I would like to give members a couple of quotes from Dr Cullen. In a  
Scoop 
 article of 15 July 1999 “Government stokes inflationary pressure” Michael Cullen the then Labour spokesperson on finance stated: “Inflation is still under control but no thanks to the Government”. He was also quoted as saying that things were in a right mess and that the New Zealand economy was then at a point where the only factor keeping the lid on inflation was the overvalued exchange rate.” If we zip forward 8 or 9 years do we not see that the chickens have come home to roost? We will be holding Dr Cullen to account for his previous statements. He is in big trouble. He knows it and he is trying to find someone else to blame. 
Before I sit down I will just touch quickly on the current account and one other item. In 1997 Dr Cullen called the current account which was 7.7 percent of GDP back then “horrendous” and said that it was damaging to compare the New Zealand economy to that of Mexico and Asia. I say to Dr Cullen that the current account is currently around 10 percent of GDP so if it was horrendous at 7.7 percent what is it now? 
I will make one final point that I heard an earlier speaker note in the Budget Policy Statement debate. There are 144-odd pages in this document. The lead item outlines the goals that drive Budget decisions and process for 2007. Not once in 144 pages do the words “carbon neutrality” appear. Yet according to the Prime Minister that is supposed to be the most important item facing New Zealand in the coming years. She mentioned carbon neutrality 33 times in her Prime Minister’s statement which was delivered about 3 weeks before these documents were discussed. 
To summarise the inflationary chickens are coming home to roost. Unfortunately New Zealand’s mortgage credit card rates are about to go up and we know exactly where to point the blame. It goes to Dr Cullen.