Parker David: Public Finance (Fiscal Responsibility) Amendment Bill — Second ReadingText is incorporated into the Bound VolumeParker David: Public Finance (Fiscal Responsibility) Amendment Bill — Second Reading[Sitting date: 25 June 2013. Volume:691;Page:11249. Text is incorporated into the Bound Volume.]Hon DAVID PARKER (Labour):The Labour Party is opposing the passage of this legislation the Public Finance (Fiscal Responsibility) Amendment Bill because it does nothing of substance to improve the fiscal responsibility of Government. Therefore it is not worthy of further time in this House.The Labour Government in power—and I was pleased to hear the acknowledgment from the Hon Chester Borrows in his second reading address—was fiscally responsible. We ran nine Budget surpluses in a row. We ran surpluses of 6 percent of GDP at a time when the then Opposition the National Party opposed those surpluses and called for larger tax cuts than we were putting through at that time. We did cut taxes for the corporate rating and we did reduce the tax burden of families with children but we did not go as far as the National Party wanted us to go. Rather we ran larger surpluses than it wanted.Rather than doing as the then Opposition National Party said we ran very substantial surpluses. The National Party would have had us following the suit favoured by the likes of George W Bush in the United States where Budget deficits were run in a time of plenty so that when the global financial crisis came New Zealand’s debt levels would not have been as low as they were. We had reduced net Government debt to zero and had reduced gross Government debt from 38 percent to 18 percent of GDP over that period and that is the reason why New Zealand’s Government debt is not higher than it would otherwise be.The history of the fiscal responsibility legislation is not quite as the Minister described it there. The reason that Treasury conducted a review of the fiscal responsibility legislation was that National promised ACT in their coalition agreement that it would do so. The coalition agreement between ACT and National indeed required National to give consideration to having a fiscal cap—something like a maximum percentage of GDP that could be spent by the Government. Unfortunately the National Party did not check whether Peter Dunne would vote for it. Peter Dunne the Independent MP for Ōhariu would not vote for it because he saw the folly of having a fiscal cap.Indeed there are two examples I will give as to why that was an absolute folly. The first is California. California has a fiscal cap a spending cap that is set by its law which the legislature the local state Government cannot breach. As a consequence the quality of education in California has declined from being one of the—David Bennett: Oh what a load of rubbish.Hon DAVID PARKER: Rubbish? Yes there is rubbish education in parts of California now Mr Bennett. As a consequence of its fiscal cap it has had to decrease spending on education. The education system in California has gone from being one of the best state-based education systems to being one that is far worse. That is what happens when you have inappropriate spending caps.The other example of course is that if you had a spending cap and the global financial crisis hit and then you had a large earthquake in the Canterbury region you could not spend the money required to keep your country operating properly. As a consequence of that reality which is that sometimes Government spending increases through no fault of anyone beyond what might have been previously thought to be a prudent cap for a short period of time those members saw the folly in their ways. It ofcourse coincided with the fall from grace of the Hon John Banks—somewhat misnamed some would say—as a consequence of the controversies surrounding him and the allegations of electoral fraud that surround him and for which he currently appears on charges in court.Against that background we voted with some spirit of cooperation for the first reading of this bill because we believed that we should have consensus around fiscal responsibility legislation. Certainly on this side of the House we believe in fiscal responsibility and every Labour Government you have ever seen has been fiscally responsible. We got to—Maggie Barry: Delusional.Hon DAVID PARKER: “Delusional.” says Maggie Barry. You know Maggie Barry still does not understand that the ultimate test of fiscal responsibility is really whether you are reducing Government debt. We went to the Finance and Expenditure Committee and we asked: “Well look is this meaningful?”. We asked officials whether this new principle being introduced which is to formulate fiscal strategy with regard to its likely impact on present and future generations would mean that the current Government would have to look again at the age of eligibility for superannuation.If there is one driver of Government expenditure that has increased in recent years almost exponentially it is the cost of superannuation. It is already more than the cost of all benefit classes combined. Within 2 years the amount that is spent by the Government on superannuation exceeds the amount that the Government spends on education—that is preschool primary intermediate secondary and tertiary education combined. So if ever there was a category of expenditure where there is an effect on future generations it is the trade-off between the cost of superannuation and the cost of education and yet we were told by officials that this would have no effect on that decision. So it shows you how meaningless this piece of legislation is that that is the effect.Dr David Clark: It’s a waste of Parliament’s time.Hon DAVID PARKER: It is a waste of Parliament’s time.The next area that we had a problem with was the interaction of monetary policy and fiscal responsibility legislation. There is new wording that is introduced in the bill that says that the interaction with monetary policy has to be considered when you formulate fiscal strategy. The Labour Party has concerns that we elevate for ever monetary policy above other important aspects of economic management. That is not to say that monetary policy is not important; it is just to say that you ought not elevate it to give it primacy above other important matters of economic management. So we suggested wording that said “formulating fiscal and monetary policy with regard to the interactions between them” which was a more balanced articulation of the concept that the Government wanted to address. We were told by Government members and officials on behalf of the Government that they disagreed. They thought that we should not be talking about the effect of fiscal policy on monetary policy in this document because monetary policy is delegated to the Reserve Bank.Well that just shows you the imbalance that is created by this legislation if you do not have some counteracting balance in some other piece of legislation. But further than that it shows how narrow the Government view of monetary policy is. It views all monetary policy as having been delegated to the Reserve Bank. It is true that that which has been delegated to the Reserve Bank is delegated to the Reserve Bank but that does not mean to say that all monetary policy is. It is only the bit that is within the purview of the Reserve Bank that is delegated and that does not mean to say that other things like policy advice and other aspects of Government policy that impact upon monetary policy are not left with the Government—they are. So we think that that is wrong.We went further and we said: “Well let’s have a look at overseas jurisdictions.” and we thought we would have a look at the Australian equivalent. The Australian equivalent makes express reference to national savings as opposed to Government savings.The national savings position is expressed through the net international liabilities or assets of a country and the effect on those from year to year caused by current account deficit. As many will have heard New Zealand has the worst current account deficit in the developed world this year according to the IMF—Dr David Clark: Worse than Greece.Hon DAVID PARKER: —and the second worst according to the OECD and both of them think it will be worse than Greece’s. So national savings are a big problem for this country and we would have thought that when you are having a look at fiscal policy you should have regard to national savings. Indeed Bill English used to say that the surpluses that were run by the Government under Labour came at the cost of private savings in some part and therefore had some cost to national savings and there is something in that argument. There is something in that argument.So we could not understand why if you are going to have reference to monetary policy you could not have reference to national savings. But the Government refused to agree having refused to compromise on what were pretty reasonable requests on our part particularly given the political genesis of this legislation in the ACT-National confidence and supply agreement. We said: “Well the deal’s off. We’re not going to vote for it.”It is vacuous legislation. The idea that we cannot have regard to these other factors is wrong.