Parker David: Public Finance (Fiscal Responsibility) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Parker David: Public Finance (Fiscal Responsibility) Amendment Bill — First Reading 
[Sitting date: 04 December 2012. Volume:686;Page:7048. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 I rise on behalf of the Labour Party to speak on the first reading of the Public Finance (Fiscal Responsibility) Amendment Bill. The Labour Party will be supporting this bill going to the Finance and Expenditure Committee. Can I thank the Minister of Finance for the consultation that was provided in respect of earlier drafts of the legislation which was proposed pursuant to the ACT Party confidence and supply agreement with the National Party. It is fair to say that the original drafts of this bill that were brought to us by Treasury were completely unacceptable to the Labour Party. They were fundamentally flawed in our opinion. I am not blaming the National Government for that; it was promoting policy that was being pursued by John Banks at a time when he had perhaps more political force than he now does. 
Amongst the proposals that were in the draft that was described to us by the Treasury officials who were sent for a discussion with us was the fiscal cap that was referred to by the ACT Party in its election materials. ACT said that the country needed to have a fiscal cap imposed under the Public Finance Act that was binding upon Parliament including future Governments. So I am pleased to hear the Minister of Finance Bill English agreeing that it is inappropriate that this Parliament try to bind future Parliaments in respect of how a country is to be governed. 
The history of fiscal caps around the world is fraught. You need only to have a look back at recent history in New Zealand to think about how difficult it would be to legislate for an appropriate fiscal cap. New Zealand came through a period of strong economic growth and a period of surplus after surplus. Really no one around the world or very few people around the world—there was the occasional person I have to say such as Mr Roubini but other than the occasional economist who thought that the paradigm was wrong and unsustainable most economists thought that that paradigm could continue for ever and that the world was on a stable growth path and did not have extreme debt problems. The global financial crisis proved that wrong and since then Governments around the world have had to increase spending counter-cyclically in order to as the Deputy Prime Minister says take the sharp edges off recession as Governments around the world are finding that in order to make their economies work and not sink into a declining whirlpool of decreasing output they have to stimulate their economies through fiscal policy. This has meant that Governments have had to increase spending at a time of recession put simply. If you had a fiscal cap the fiscal cap if it was set during the good times probably would not allow that. It would be a nonsense and it would have led to far worse outcomes than have been achieved in New Zealand without a fiscal cap. 
The other example I would use would be the fiscal cap that has been in place for some time in respect of Californian spending. California at a referendum agreed to a cap on certain levels of taxation which effectively capped the ability of California to spend. There were certain classes of taxation that by law until there is another referendum that changes that rule could not be increased. The effect of that is that the Government in California has not had enough money to do what it needs to do. As a consequence it has had failing corrections policy—it has got terrible prisons and prison outcomes. But even worse than that California which used to have one of the best state education systems in the whole of the United States of America has had a decline in its educational system because the Government has not been able to collect enough revenue in order to pay for a decent education system. 
Those two examples show just how lunatic the proposals from the ACT Party were that New Zealand’s Public Finance Act should actually include a fiscal cap. So I am pleased that that policy has been ditched and this legislation as a consequence can have the support of the Labour Party at its first reading. 
There are a couple of other points to be made. None of these changes are actually necessary for the Government to conduct sound economic policy. It is pretty much window dressing. Let us look at the first change. The first change changes the fiscal responsibility set out at section 26G(1)(e) of the Public Finance Act which currently says: “pursuing policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years.” It replaces it with these words: “formulating revenue strategy with regard to efficiency and fairness including the predictability and stability of tax rates;”. Is that a great change—a great significant change? I do not think so. 
Hon Clayton Cosgrove 
: Tinkering. 
Hon DAVID PARKER 
: Tinkering as my colleague Clayton Cosgrove says. I do not think there is any problem with those new words but there is not that much difference either. It is motherhood and apple pie. It is not going to change much. 
The three new principles that are added are firstly “formulating fiscal strategy with regard to its interaction with monetary policy;”. I agree that that is appropriate—“with regard to”. It does not give monetary policy primacy over fiscal policy and neither should it. If it went further and said “formulating fiscal policy so as to coordinate with monetary policy.” and had a requirement on Government that would be wrong. That would effectively be saying that Government decisions as to the management of the economy had to be subjugated to what was being done with monetary policy through the Reserve Bank. We can live with “with regard to” its interaction with monetary policy but we again make the point in the context of this debate that we have some problems with the current iterations of monetary policy whereby the interests of inflation targeting always trump other aspects of economic management. In other words other aspects of economic management like the health of your export sector are subjugated to the interest of inflation when there is a contest between the two which in our view is wrong given New Zealand’s 40-year current account deficit. 
The idea that Governments current and past have not had regard to monetary policy in setting fiscal policy is a nonsense. The last Labour Government ran surpluses. In fact one year we ran a surplus of 5 percent of GDP. 
Hon David Cunliffe 
: Who opposed that? 
Hon DAVID PARKER 
: Oh that was opposed Mr Cunliffe by the National Party. That $10 billion surplus that year was one of the largest as a percentage of GDP in the Western World. At a time when other Western countries like the United States like England like most of the countries in Europe were running Budget deficits in a time of plenty the New Zealand Government under Labour’s leadership on the Treasury benches ran very very significant surpluses. They were so difficult politically to achieve because the Opposition—the then National Party Opposition—was saying: “Tax cuts. Tax cuts are the way forward.” 
Hon Clayton Cosgrove 
: They accused us of being mean. 
Hon DAVID PARKER 
: Yes they accused us of being mean and that we were keeping people’s money from them. In fact what we were doing was in a time of plenty putting money away. That is why when the Labour Government left office we had reduced gross Government debt from 38 percent to 18 percent of GDP and net debt down to zero including financial assets. 
The next new principle is “formulating fiscal strategy with regard to its likely impact on present and future generations;. Again Governments should already be doing that and I think it is somewhat galling to have the Government saying that it should put that into the Act when it is denying the need to address the age of eligibility for superannuation. The biggest cause of increasing Government expenditure going forward—actually there are two cost centres. One is rising health expenditure and the other is rising superannuation costs. Within 4 years the cost of New Zealand superannuation exceeds the cost of preschool primary intermediate secondary and tertiary education plus trade training and the costs of the education ministry. All of those are exceeded by the cost of superannuation. If the Government cannot see that it is time to give advance notice of the need to increase the age of eligibility for superannuation then formulating fiscal strategy with regard to its likely impact on present and future generations is just hot air. 
In respect of the next principle “ensuring that the Crown’s resources are managed effectively and efficiently.” who can disagree with that? Is the Government really saying that it is not doing that currently? 
This legislation is largely inoffensive. There may be some details in respect of the requirement to produce a report reporting against prior Governments’ fiscal strategies. I have a bit of a problem with that and we will be looking at that at the select committee. But in general this bill is much less offensive than if it had tried to impose a fiscal cap and the Labour Party will be supporting it going to the select committee.