Budget Statement

Hon BILL ENGLISH (Minister of Finance) Link to this

I move, That the Appropriation (2011/12 Estimates) Bill be now read a second time.

In 2008, this Government was elected to build a more prosperous and ambitious New Zealand.

Since then New Zealand has been hit with the lingering effects of the global financial crisis, the two earthquakes and other unforeseeable setbacks.

But we have made progress regardless.

The Budgets of 2009 and 2010 helped sustain economic activity and support jobs, and protected the most vulnerable New Zealanders.

At the same time the Government has pursued a longer-term programme to lift growth. It has made major infrastructure investments, improved regulation, continued to reform and invest in science and innovation, shifted resources to frontline services and reformed the tax system.

That work continues. Today I introduce a Budget that will further strengthen the long-term performance of the economy.

It supports economic forecasts that show growth returning to its highest in over five years and 170,000 net new jobs being created by 2015.

It channels resources into key social programmes, while ensuring they are well-targeted and protect the most vulnerable.

It provides certainty that Christchurch, our second largest city, can be rapidly rebuilt.

And, despite the earthquake, it eliminates the deficit and achieves surplus by 2014/15, a year earlier than forecast in last year’s Budget.

As a result, the Government’s need to raise debt will greatly diminish. This year we have raised an average of $380 million of net new debt every week.

Next year that will fall by more than two-thirds to around $100 million. And from 2014/15 on we will be repaying debt.

Creating and passing through this House a Budget each year is at the heart of stable government. I want to especially thank the Government’s support parties, ACT, the Māori Party and United Future, for their contributions.

Mr Speaker,

Our main task remains to return New Zealand to sustained prosperity. The economy has been underperforming since before the global financial crisis. Indeed, per capita GDP has not grown since 2004.

This Government believes that a competitive and well-balanced economy can deliver more jobs and high incomes.

Between 1990 and 2004, a 15-year period, on average the New Zealand economy grew by over 3 per cent a year, and export volumes rose by over 5 per cent a year.

On average 35,000 jobs were created every year.

So our plan is simple, and always has been.

It’s about returning to conditions that allow New Zealand to focus on what it is good at doing.

It’s about making sure we have a tax system that encourages work and savings, rather than providing incentives to shelter income.

It’s about having an efficient public sector that doesn’t crowd out the internationally-competitive parts of the economy.

It’s about limiting government debt, to reduce our reliance on foreign lenders and to give us a buffer against future economic shocks.

It’s about regulation that encourages enterprise and flexibility.

It’s about an education system that is producing skilled workers, and those workers knowing they have a successful future here in New Zealand.

It seems simple but it’s easy to get off track, as we have seen.

However, it is the only way to create permanent, worthwhile jobs for Kiwis and their families.

It’s a proven formula. It works.

Mr Speaker,

Let me first address issues raised by the Canterbury earthquakes.

Christchurch is not only our second-largest city - it is also a major industrial, tourism and regional hub, and is essential to the performance of the wider economy.

The estimated combined cost of the two earthquakes to the economy is around $15 billion, which is about 8 per cent of GDP.

To put this in context, the recent earthquake off the north-east coast of Japan is estimated to have caused damage equivalent to around 3 to 5 per cent of Japan’s GDP.

The Treasury’s estimate of the direct impact on Crown expenses from the two earthquakes is $8.8 billion. This comprises a $3.3 billion cost to ACC and EQC, net of reinsurance, and an estimated $5.5 billion for all other costs. This includes repairing infrastructure, roads, schools and hospitals, providing temporary housing and providing the business support package.

The $8.8 billion cost is too much for Christchurch residents alone to bear.

But it is manageable within the Government’s fiscal programme. New Zealand’s annual GDP is around $200 billion. The Government spends around $70 billion a year and has assets of over $220 billion.

For these reasons, the appropriate response is to initially debt fund this cost. That will ensure that the burden of reconstruction is borne evenly across all regions and spread across time.

Debt funding is both the quickest and fairest way to pay for it.

Budget 2011 will provide certainty of funding for Christchurch by establishing the Canterbury Earthquake Recovery Fund.

This Fund will initially include up to $5.5 billion to meet all of the Government’s earthquake-related costs, other than those funded by EQC and ACC.

The Canterbury Earthquake Recovery Fund will ensure that there is transparency and control over the cost of the earthquakes. It is expected to take several years for the final bills to arrive, after which the Fund will be wound up.

The Government will also launch a new four-year maturity Earthquake Bond for New Zealand investors. The proceeds will be directed to the Canterbury Earthquake Recovery Fund.

These arrangements mean that reconstruction of Christchurch can proceed with certainty that the Crown’s contributions are fully funded.

Mr Speaker,

The OECD, the Savings Working Group and others have pointed out that we need to make the economy more competitive and lift national savings.

Currently, most businesses and households have successfully lifted their own savings. While that has hurt retailers for now, in the long term it is a good thing.

The main sector not saving is the Government.

The deficit in 2010/11 will be large, at $16.7 billion or 8.4 per cent of GDP. This includes a range of one-off costs, including the earthquakes.

The Government believes there is a strong case to eliminate the deficit faster and target a lower level of public debt. This is for a number of reasons.

The fallout from the global financial crisis of two years ago is gradually receding.

The recent fiscal expansion, which began in the mid-2000s and saw nominal spending rise 50 per cent in just five years, has placed much strain on the economy. Exports, growth and productivity have all stagnated.

Finance costs would otherwise rise unacceptably, squeezing out more worthwhile spending.

Rising debt leaves the Government vulnerable and less able to meet future shocks. Its double-A plus credit rating is on negative outlook with two rating agencies.

And productivity growth over the past decade has been less than one-sixth of that in the 1990s.

For all these reasons, stronger government finances are an essential component of moving to sustainably higher growth and job creation.

Mr Speaker,

The Budget forecasts show that, while Government spending will increase, it will do so more slowly than projected previously.

Core Crown spending is forecast to rise from $73 billion in 2011/12 to $77.1 billion in 2014/15.

The Budget identifies $5.2 billion of savings over five years that will be redirected to frontline public services and to reducing the Government’s deficit.

New operating spending of around $4 billion over that period is tightly prioritised to health and education, which together receive three-quarters of total new spending.

The net result is a saving of $1.2 billion in operating spending over five years from those parts of the Budget funded by new spending allowances.

Mr Speaker,

Part of the adjustment involves examining programmes where costs have expanded rapidly, in ways that weren’t anticipated, and without commensurate value to the community or taxpayers.

KiwiSaver, Working for Families, student loans and ACC are all examples where cost escalation has occurred.

The Government is committed to all of these programmes. With modest adjustments, they will emerge more effective, better targeted to those who really need them, and aligned with what the economy can afford.

Mr Speaker,

The Government has looked closely at KiwiSaver.

KiwiSaver is now well established. It has nearly 1.7 million members, and is gaining about 20,000 new members a month. KiwiSaver funds provide a pool of long-term capital which can be invested with relative certainty.

KiwiSaver balances are currently around $7.9 billion. Of this, about $3.5 billion has been directly contributed by the Government, and the balance by individuals and their employers.

In 2010/11 alone, the Government is contributing $1.2 billion.

At present, KiwiSaver’s contribution to national savings is ambiguous. It helps individuals to save for their retirement.

But it means the Government is borrowing, mostly from foreigners, to contribute to private savings.

This does not lift national savings.

A better approach is to have New Zealanders actually saving for their future.

To achieve this, the Budget makes the following changes.

The default and minimum rate of member contributions will increase from 2 per cent to 3 per cent from 1 April 2013. Employees will retain the option to opt out.

The rate of employer contributions will also increase from 2 per cent to 3 per cent from 1 April 2013.

The Member Tax Credit will be reduced to 50 cents per dollar of individual contribution, with the cap halved to $521 per year from the year ending 30 June 2012. This change will be reflected in payments to KiwiSaver accounts from the second half of 2012.

The exemption from the Employer Superannuation Contribution Tax will be scrapped from 1 April 2012. This exemption is regressive, in that those on higher incomes receive larger subsidies.

Existing Kick-Start payments will remain unchanged.

The combined impact will be to see KiwiSaver inflows largely unchanged, but funded more by private savings and less from the Government. The fiscal saving to the Crown will be $2.6 billion over the next four years.

KiwiSaver remains an attractive, subsidised investment. The Government is planning to contribute $650 million next year and $2.5 billion over the next four years.

These changes put KiwiSaver funds on a sound footing. On current projections, KiwiSaver funds will total around $25 billion by 2015, and nearly $60 billion in 10 years’ time.

KiwiSaver funds are well placed to participate in the Mixed Ownership Model, which I will come to shortly.

Where State-owned Enterprises raise outside equity, New Zealand investors will be at the front of the queue to invest. We expect KiwiSaver funds to become substantial long-term holders of these investments.

The decisions to lift default contribution rates, to keep KiwiSaver membership voluntary and to remove the Employer Superannuation Contribution Tax exemption were all recommendations of the Savings Working Group.

Mr Speaker,

This Budget makes changes to Working for Families to better target assistance toward lower-income families, and to put the scheme on a more sustainable footing.

Working for Families will remain essentially in its current form. The changes consist of small adjustments to the abatement threshold and abatement rate, and a gradual alignment of the over-16 rate with the 13-to-15-year-old rate.

These changes will be phased in over four steps as Family Tax Credit rates are adjusted for inflation. This is a very gradual transition which is expected, given current inflation forecasts, to take eight years.

Lower-income families and beneficiaries will be largely unaffected by these changes, and the majority will actually get an increase in their Working for Families payments after 1 April next year.

A number of families higher up the Working for Families scale, however, will receive a little less than they currently do now, or will no longer qualify. In most cases, the impacts will be small.

To put this in context, total Working for Families payments have almost doubled over the past five years, and are forecast to cost about $10.7 billion over the next four years. These changes represent about a 4 per cent trimming of the scheme.

Mr Speaker,

The Budget also makes changes to the student loans scheme.

Once again, the scheme will continue in essentially its current form.

This year, the Crown will lend almost $1.6 billion to assist students, up 50 per cent over the past five years. There are currently more than $12 billion of loans outstanding.

However, at present, for every dollar lent out the Government receives only around 55 cents back in 2011 dollar terms.

Budget 2011 tightens the lending criteria so that the scheme is better focused on those who really need assistance.

The measures tighten borrowing conditions for those aged over 55, for part-time students and for those already overdue or in default. There are a number of additional changes.

The estimated operating and capital savings over four years are $447 million. The Crown still expects to lend students a further $6.5 billion over the next four years.

Mr Speaker,

The public sector has a wider role to play in lifting productivity and national saving.

Over the past two years the Government has signalled the need for the sector to become more efficient, and has been mindful of the large increases in most budgets that have occurred in recent years.

In its first two Budgets, the Government successfully reprioritised $3.8 billion of spending into higher-priority areas.

In Budget 2011, $980 million of efficiency savings will be sought from the public sector over three years, starting from 1 July 2012.

The Government will require agencies to fund the cost of KiwiSaver, and some State sector retirement schemes for their employees. This will generate savings of $650 million. At present these contributions are centrally funded and not visible to public sector employers.

A further $330 million in back office savings will be sought from 31 core government agencies.

The savings are part of the ongoing improvement that the Government expects, and are consistent with the adjustment the households and businesses have had to make in recent years.

Mr Speaker,

One area where the benefits of cost reductions are already apparent is ACC.

Over the past two years, ACC has successfully controlled its previously run-away costs, and delivered better results from existing spending.

One immediate benefit is that the Government will need to contribute $638 million less to the non-earners’ account over the next four years than previously projected.

ACC members in other accounts will also benefit, with future levies also trending lower as a result of the cost savings within the scheme.

Mr Speaker,

I now turn to the Budget’s main new initiatives.

The largest share of new spending has been dedicated to improving core front-line government services.

The health sector will receive $1.7 billion of new funding over the next four years. In addition, a further $500 million of expenditure has been reprioritised within the sector.

District Health Boards will receive the bulk of this funding, including around $400 million in the next year alone.

This will fund a wide range of initiatives, including care for first-time mothers, widened access to medicines funded through DHBs, additional elective surgery, increased disability support services and training more doctors.

The Government’s commitment to raising education standards remains strong, so that all young New Zealanders reach their potential.

The Budget provides an extra $1.4 billion for education, including over $100 million of new capital spending. In addition, a further $356 million has been reprioritised.

This builds on the past two years’ investment in early childhood education, National Standards and the Youth Guarantee.

Early childhood education also receives an additional $550 million.

The justice sector is to receive $157 million in new funding in Budget 2011 to ensure access to justice and increase public safety.

There are significant initiatives elsewhere where a strong case was made for additional funding.

Statistics New Zealand receives $58 million of new funding to rebuild 20-year-old IT systems that will ensure the ongoing supply of important economic and social data.

The Irrigation Acceleration Fund has been expanded with $35 million of new funding over the next five years. This will help support the development of new water harvesting, storage and distribution infrastructure.

Budget 2011 provides significant capital and operational funding to strengthen delivery of school and community-based Māori language initiatives, help schools to engage better with Māori students, improve literacy and support Kura Kaupapa Māori.

Budget 2011 provides an additional $25 million over the next four years for Whānau Ora, with a further $5 million to be reprioritised from within Vote Māori Affairs.

I particularly thank the Hon Dr Pita Sharples and the Hon Tariana Turia as the Ministers responsible, together with the rest of the Māori Party.

Mr Speaker,

The Budget also includes a range of new capital spending, mostly focused on improving New Zealand’s infrastructure.

The Government believes that efficient infrastructure will underpin improved productivity in a growing economy.

Budget 2011 allocates a further $942 million of capital funding to ultra-fast broadband, as Crown Fibre Holdings completes negotiations for the roll-out. This brings the total invested over the past three years to $1.4 billion.

A further $28 million has been allocated for ultra-fast broadband in schools.

The Budget includes the second $250 million tranche of the Government’s intended $750 million investment over three years as its contribution toward KiwiRail’s $4.6 billion turnaround plan.

And there is an additional $88 million over eight years to complete the upgrade and renewal of the Wellington Metro rail network.

Other key parts of the Government’s infrastructure programme are continuing.

We continue to invest over $1 billion a year in state highway improvements, including the seven Roads of National Significance and a number of other significant regional projects.

And the investments in the new prison at Wiri, and a number of new schools, remain on target to deliver worthwhile savings to taxpayers via Public-Private Partnerships.

Mr Speaker,

These capital commitments are part of a larger programme of investment in public assets. The net value of government-owned assets is expected to increase by $34.3 billion between 2010 and 2015.

This includes a range of high-priority areas, including social infrastructure such as schools, hospitals, housing and student loans, as well as the investment in roads, rail, broadband, electricity transmission and increased investment in financial assets.

Some of this extra investment will occur within the State-owned enterprises and Crown entities. But about $21 billion will be invested in core social infrastructure and student loans.

The Government’s objective is to maintain investment in core public assets without increasing debt. This highlights the need for the Government to prioritise where its capital is used.

Mr Speaker,

At present, our commercial assets present the greatest scope to change the Government’s asset mix.

Earlier this year the Government announced it would explore extending the Mixed Ownership Model for some of its commercial assets.

This model frees up Crown capital, provides the companies involved with wider access to capital and imposes greater transparency and commercial discipline and reduces the need for extra government borrowing.

It also provides Kiwi investors with opportunities to put their money in solid, New Zealand-controlled companies.

It provides the opportunity for KiwiSaver funds, and large government investors like the New Zealand Superannuation Fund and ACC, to increase the proportion of their funds invested in New Zealand.

The Government therefore intends to apply the Mixed Ownership Model to Mighty River Power, Genesis Energy, Solid Energy and Meridian Energy, along with reducing its shareholding in Air New Zealand, starting in 2012.

In all cases the Crown will retain majority ownership.

The expected revenue from offering minority stakes in these five companies is between $5 billion and $7 billion.

This will therefore fund about one-third of the core Crown’s increased investment in social assets in the period to 2015.

The alternative would have been to borrow more. The Government believes it is much better to reprioritise existing capital, in this case from commercial to social assets, rather than always accumulate debt.

The Government will seek a mandate in the 2011 general election before proceeding with the Mixed Ownership Model.

Mr Speaker,

The lift in private savings will benefit from a sound savings environment. Investors need both confidence to invest, and quality, reliable investments to invest in.

The collapse of the finance company sector was a major setback to confidence.

Since then, the Government has materially improved the savings environment.

This includes creation of the Financial Markets Authority, overhaul of securities law, regulation of the insurance sector and of financial advisors, and prudential supervision of non-bank deposit takers.

In terms of investment opportunities, both the issue of Earthquake Bonds, and the offer of equity to New Zealand investors under the Mixed Ownership Model, will help deepen the local capital markets.

In addition, the Debt Management Office will issue a new, long-dated, inflation-indexed bond. This reflects clearly expressed demand from long-term investors.

The local government funding agency will start operating later this year. It will be a collective vehicle, providing cheaper funding for local body projects as well as more liquid, better diversified assets for investors.

Mr Speaker,

This year the ACT Party will bring two challenging Bills to the House, which the Government will support to select committee.

The Regulatory Standards Bill seeks to improve the quality of regulatory processes. It includes a mechanism for providing transparency around the making of regulations, and an incentive mechanism to ensure compliance with the process.

The other ACT Party Bill is the Spending Cap (People’s Veto) Bill. This Bill seeks to cap real per capita government spending.

In both cases the Government will give the Bill, and the submissions on it, careful consideration.

Mr Speaker,

The final elements of last year’s tax package have now come into force, including tighter income definitions related to State assistance and reducing the company tax rate to 28 per cent.

This low rate of tax on businesses demonstrates that we are prepared to back them and recognise that business is the growth engine in a modern economy.

Mr Speaker,

Last year’s review of the thin capitalisation rules did not include banks, which are subject to a separate regime because of their high gearing.

Having reviewed the banking sector, we have decided to lift the minimum level of non-deductible capital from 4 per cent to 6 per cent, which is more in line with international norms.

This will provide estimated revenue of $100 million over the next four years.

I thank my colleague, the Hon Peter Dunne, for his ongoing work in improving our tax system.

Mr Speaker,

The measures announced in this Budget will put both the Government’s finances and the economy on a much sounder footing despite a series of adverse events and a slower economic recovery.

The projected operating deficit will fall dramatically over the next three years. It will be in significant surplus from 2014/15.

This is a year sooner than the position forecast last year.

Contributions to the New Zealand Superannuation Fund are projected to resume from 2016/17.

The debt projections have also improved.

Even absorbing the cost of the earthquakes, net core Crown debt is now projected to peak at 29.6 per cent of GDP in 2014/15 and then decline steadily.

This contrasts strongly with the outlook of ever-rising debt which the Government inherited in late 2008.

Debt would have peaked at around 27.5 per cent of GDP in the absence of the earthquakes.

Looking further ahead, continuation of current policy would see net debt eliminated entirely by 2024.

This emphasises the responsible, longer-term approach taken by this Government, which will leave future governments with choices about whether to invest, spend or reduce taxes.

It will also provide room to ride out future recessions, which surely will occur.

Our long-term fiscal objective remains to ensure that net debt remains no more than 20 per cent of GDP by the early 2020s. The current projections show this being comfortably achieved.

Mr Speaker,

Budget 2011 is about building our future.

The Prime Minister has made clear this Government’s aspirations for an economy that values enterprise, rewards people for effort and encourages them to get ahead.

This is not a typical election year Budget. It is a responsible Budget appropriate to New Zealand’s situation.

Budget 2011 shows how, from the depths of the global financial crisis when a decade of red ink was in prospect, and despite the devastating Canterbury earthquakes and other setbacks, the Government has laid the basis for future prosperity.

It is within sight of budget surpluses and falling public debt.

It has funded reconstruction of Christchurch, our second largest city.

It has in prospect the strongest growth for a decade.

It has materially improved the tax system.

It has placed KiwiSaver onto a sounder, more sustainable footing, and instilled a culture built on savings rather than debt.

And it will provide future New Zealanders with real choices about further lowering taxes, adding quality public services, or both.

We set a path for responsible government spending from the start of our term, and we maintain that path in this Budget.

This Budget continues to build a platform for a much stronger, more ambitious New Zealand.

Mr Speaker,

I commend this Budget to the House.

Hon PHIL GOFF (Leader of the Opposition) Link to this

I move, That the words after “That” be omitted and the following substituted: “this House has no confidence in the National Government led by John Key, which has borrowed heavily and created a record deficit of $16.7 billion; has no plan and no vision to improve New Zealand’s economic performance; has broken its promises not to cut entitlements to KiwiSaver and Working for Families; has made cuts that will hurt but will not solve New Zealand’s economic difficulties; and has failed to act fairly in the interest of all New Zealanders.”

Today New Zealand needed a Budget that gave it a shot in the arm. It needed a vision for a better future and how to get there. We got neither. There is nothing innovative or transformative in this Budget to address New Zealand’s economic problems. In fact, this is the worst Budget that I have seen in 27 years in this House. It is the least imaginative, and it is the most lacklustre.

This is not a zero Budget; it is a subzero Budget. It has frozen New Zealand in time. It seeks to balance the books on the back of broken promises, and on the flogging off of $7 billion worth of assets that New Zealanders built up and paid for with their taxes, and that belong to them. The Government has banked the proceeds from those sales, and from the broken promises, without any mandate to do so. It has broken its word, and no amount of verbal gymnastics will disguise that fact. This Budget leaves the country with a record $16.7 billion deficit and an unsustainable borrowing level of over $300 million a week. It is a Budget that hurts; it does not help.

Today we needed a Budget from a Government that had the guts to make the right decisions, however tough those decisions may be. We needed a Government that was absolutely committed to ensuring that everyone paid their fair share no matter what they do for a living and no matter where they live or how much they earn. This Government has failed on both counts. We needed a Government with a plan, but this Budget makes it clear that National has no plan. It is not only the Opposition and the trade union movement saying this; the business community is saying this, and even National’s ally the ACT Party.

John Key has made a lot of his economic skills, but in this Budget he has failed absolutely to deliver. Today’s Budget does nothing to address the real problems facing our country: high debt, low wages, low productivity, high unemployment, and poor economic growth. When I read these books I see that the total debt of New Zealand, public and private, is currently 86 percent of GDP. Where does it go by 2015? From 86 percent to 85.3 percent. That is the achievement of this Government in reducing New Zealand’s debt. That is a failure.

This Budget was meant to be about saving. That was to be the centre point of this Budget we heard from the Minister of Finance. But all this Budget does about saving is to cut the entitlement that National sincerely promised New Zealanders it would never cut.

This Budget will do nothing to help hard-working New Zealanders who are struggling to pay the bills every week, because their incomes cannot keep up with the cost of living. That is because John Key and National have failed to face up to the big problems. The Government keeps promising that the good times are around the corner. Really, New Zealanders do not believe that. It is tinkering around the edges. It wants to play it safe, but right now this country needs a bold plan to fix a broken economy.

The legacy of this Budget and this Government is a $16.7 billion deficit. That is seven times higher than the 2008 prediction by Treasury of what the deficit would be this year—seven times higher. In November 2008 National inherited one of the lowest Government debt levels across the developed world from a Labour Government that ran surpluses for 9 years, not deficits, and built up $14 billion in the Cullen superannuation fund. Yes, there was a global financial crisis in 2008, but that was over by 2009. What did Mr English say in December 2008? He said: “New Zealand starts from a reasonable position”. That is where he started in December 2008, but there is no way this Government can claim that New Zealand’s debt today is in a reasonable position.

Why were we in a reasonable position, according to Mr English in December 2008? Because the Labour Government had saved for the rainy day. The fact that New Zealand is better than it might be owes much to the careful management of the previous Labour Government. We should be in a better position. Our economy should be booming. The returns that we are getting from our exports to thriving markets such as China, with which I negotiated a free-trade agreement, are the highest they have been in 35 years. We had earthquakes in Christchurch, which did not help, but $10 billion in reinsurance money will flow into Christchurch over the next couple of years. I am informed that only 10 percent of the deficit owes anything to the earthquakes. The fact is that the New Zealand economy was in trouble from the time of Mr English’s last Budget—long before the earthquakes struck. New Zealand, in the 6 months after Mr English’s last Budget, was failing to achieve the projected growth. In fact, we had nil growth, rising unemployment, and the highest quarterly inflation in 20 years.

The problem is that the National Government has no vision of what a successful economy looks like, and no plan to get there. Gimmicks will not do it—gimmicks such as job summits that create no jobs, cycleways that create 200 jobs, Mr Brownlee’s promise to mine our national parks, which did not run at all, and, of course, the increase in GST, which did not help growth but just made it harder for families to meet the rising cost of living.

The truth is that National’s three Budgets have failed to deliver a real plan for prosperity, and they have failed to meet the fairness test. Top earners have done very well, getting hundreds and sometimes thousands of dollars extra in tax cuts each week. In fact, the top 10 percent of New Zealand took 40 percent of all the money for the tax cuts. What did the bottom 20 percent get? They got 1.4 percent of the money. That is neither fair nor smart. Spending $2.25 billion every year on tax cuts for the top 10 percent of earners simply does not make sense when the Government is borrowing $300 million a week.

John Key and Bill English made reckless election promises in 2008, in the middle of the global financial crisis, knowing full well that this country could not afford the promises they were making. What is more, while they were making those promises about the big tax cuts they made some other promises. They promised they would not cut KiwiSaver; they did. They promised they would not touch Working for Families; they have. And the biggest promise of all was John Key saying: “We will not be increasing GST.” We know what happened there.

It is clear why this country’s deficit has blown out of control. Firstly, the National Government spent $14 billion on tax cuts when it could not afford to. The second reason is the failure of the New Zealand economy. When we do not get growth, when incomes are actually falling, and when unemployment is going up, the Government’s revenue fails. It falls. That is exactly what has happened.

I remember well in 2009 John Key promising the country that New Zealand was coming aggressively out of recession—coming aggressively out of recession. He had hardly uttered those words when we went back into recession. So New Zealanders will be sceptical today about the heroic Budget forecasts that predict economic growth and higher wages around the corner—or at least, that is what John Key told us. When I look at the Budget forecast for growth, I see that actually that growth will be below the long-term forecast levels. If we take the Rugby World Cup 2011 and the Christchurch reinsurance out of that forecast, growth will be about 2.2 percent. That is a pathetic level of growth coming out of a recession, when normally a country’s growth would be up around 6 or 7 percent.

We have a real problem: the big debt built up by this National Government. That means prudent financial management for an incoming Government. It will mean reprioritising. It will mean efficiencies. Existing spending is not sacrosanct, but I tell members that if cuts have to be made, they must be both justifiable and fair. They must help the economy to grow and they must lift incomes. If they do not, they just hurt and they do not work.

Rt Hon JOHN KEY (Prime Minister) Link to this

That was not a Budget speech from Phil Goff; it was a valedictory. The “face of the future” told us that this was the worst Budget in 27 years. Well, I say this: what about the nine Budgets that Labour delivered just before this National Government that saw interest rates double in this country? What about those nine Budgets that saw no wage growth? What about the fact that the only way that New Zealanders got ahead under Labour was to borrow more money? That was the only way forward. What about the fact that our economy went into recession when it came to exports back in 2004, under Labour? Phil Goff might not like this Budget, but Standard and Poor’s does. It has just given this Budget the tick.

It is clear that the Leader of the Opposition has no clue about economics. That was abundantly clear from his speech. He came out with a couple of crackers. One of them was that the global financial crisis ended in 2009. That is interesting. He should go and tell that to the people of Ireland, Portugal, Spain, and Greece. While he is at it, he can go have a chat to the IMF and the World Bank, because they are bailing out people left, right, and centre. On his way home he can go via America, see the 10 percent of Americans who are unemployed, and ask President Obama why he is borrowing US$1.4 trillion a year. But, according to Phil Goff, the global financial crisis ended in 2009.

What did I learn from that speech from Phil Goff? Here is the answer. It is not just Helen Clark who is texting Phil Goff from New York; Bernard Madoff is, as well. I can tell members that that was not an alternative budget; it was the Labour Party Ponzi scheme to spend more money, borrow it from someone else, close one’s eyes, hope, and, eventually, leave it to a National Government to tidy up. I can tell members that that strategy might go down well in Greece, but in Grey Lynn they want real answers and this Government is delivering them. They want a grip on reality. Phil Goff does not live in Mt Roskill; he lives on “Fantasy Island”. Over here on “Reality Island” we have some serious things going on.

I want to say to Bill English: “Thank you for a Budget for the times.” We are proud of him. Our balanced, fair, and affordable Budget is a Budget with a plan. It is not a plan when one just borrows more money. [Interruption] The muppets are going on over there. That says it all. You see, this is a Budget that gets us back into surplus within 3 years. This is a Budget that will see interest rates lower for longer. This is a Budget that will see 170,000 new jobs created. This is a Budget that will see real wage growth. But those muppets do not think that is a plan, because we are not spending more money, which the Chinese would have had to lend to us. According to Labour, unless we spend other people’s money it is not a plan. Well, this is a Budget with a plan.

This is what this Government and New Zealand inherited from Labour: a decade of deficits. We inherited 10 years of rising debt and no end to that. We inherited 10 years of rising debt that would have seen debt to GDP at 60 percent, not the 29.6 percent that is delivered today—even while paying for an earthquake of the magnitude we have had to put up with. The parting gift from the previous Labour Government was a decade of deficits and no end in sight to that borrowing. [Interruption] Those members do not like it, but that is the truth. It is in the Budget and it is in those documents that, as the incoming Government, we got from Treasury.

I am proud to stand here today and say that this country is going back into surplus. It will be going back into surplus, in my view, before the end of a second term of a National Government. This is what the deficit looks like. It is a large deficit this year because it pays for Christchurch and, actually, it insulates the most vulnerable New Zealanders who rely on the Government. I am proud to have looked after those vulnerable New Zealanders through the tough times. But this is a deficit that halves next year, halves the year after, then is gone. That is what good economic management looks like. That is a plan.

This is a Budget that delivers real wage growth. Let us go back and look at 9 years of a Labour Government. We had 3 percent wage growth in 9 years. The only way New Zealanders could get ahead under a Labour Government was to borrow more money—borrow more money, or leave. Those were the options. This is a Budget that quite clearly demonstrates 170,000 new jobs for New Zealanders over the next 4 years.

What is very interesting about this Budget is that it includes $8.7 billion for Christchurch. So when my MPs go to Christchurch and say to the people of Canterbury that we are committed to their city, we believe in them, and we care, we put our money on the line. This Budget does that for the people of Christchurch. As the Minister of Finance pointed out in his speech today, the earthquake is a big impost on New Zealand. It is probably the most expensive natural disaster as a percentage of GDP that we can find in the developed world. Japan’s earthquake has had half the impact on its GDP that the Christchurch earthquake has had on our GDP. In fact, we are struggling to find another country that has had a natural disaster with such an impact on its economy. It is all paid for in Budget 2011. It is a balanced, fair, affordable Budget with a plan.

We are going to be going ahead on a platform of solid economic growth. I will talk for a moment about interest rates. It is a topic one never hears about from Labour. Those members are ashamed of their record with interest rates. They talk about the cost of living, but when they left office interest rates were twice as high as they are today. [Interruption] That is right: they were going up twice as high, I say to Mr Cunliffe. Inflation was 5 percent. What do we find today? If a New Zealander living in Grey Lynn—not living in Greece, or in “Fantasy Island” over there, with Mr Goff in charge—owes a mortgage to the bank of $200,000, which many people in Grey Lynn do, their interest rate today is $10,000 a year less. That is $200 a week less. I say to this House and to the people of New Zealand that a National Government will deliver interest rates that are lower than they would be under Labour, and lower than they will be over the cycle. That is what good economic management looks like. That is the dividend of Budget 2011. That is about the young home buyers who today are watching the Budget and saying to themselves that they want to buy a new home, to get into their first home. What is their decision point? “Can I afford to pay the mortgage?” is the question they are asking themselves. I say to that young couple that, yes, they can. They will have real wage growth under National, they will have jobs, and they will actually have lower interest rates, and that makes buying a home affordable.

Let us get to the tax system. The big idea that came from Phil Goff was this: put up the top personal rate. OK, it is about as transparent as the All Blacks winning the Rugby World Cup in a few months’ time. “Put up the top personal rate.”, is Phil Goff’s message to New Zealanders, and probably a capital gains tax is coming, as well. David Cunliffe has hinted at it. Phil Goff is nodding. OK, a nod is as good as a wink. There will be a capital gains tax under Labour and higher personal taxes. Let us look at the little tax package that is in the Budget. It tells us that 51 percent of all personal taxes in this country are paid by 13 percent of New Zealanders—13 percent of New Zealanders pay over half of all personal taxes. Phil Goff’s message to them is: “We do not care about you. See you later; you make no valuable contribution to New Zealand.” Well, I say to the 13 percent thank you for being entrepreneurial, thank you for being in New Zealand, and thank you for paying half of the personal taxes in this country. [Interruption] That is exactly right, I say to Mr Power. This is a Government of aspiration, not an Opposition of envy. This is a Government that says quite clearly through the tax system to New Zealanders that if they want to get ahead, if they want to do better for themselves and their family, if they work hard and if they save hard this Government supports them to do that and they get to keep more of what they earn. They get choice. Labour members do not like choice. They do not like the idea of people spending their own money. They like to leave people with pocket money. Well, pocket money in my household ends when one is about 16. When people get a bit older they can make their own money and they can make their own choices.

Let us turn to some of the capital spending in this Budget. There is $1.3 billion for ultra-fast broadband. National is not planning to be like the Opposition. We are not a ring binder Opposition; we are an iPad Government. That is what we are. We are an iPad Government, wirelessly walking around and making sure that New Zealanders are connected to the world. Do members know what? I remember when David Cunliffe used to believe in ultra-fast broadband. He used to believe in it not so long ago. The message is quite clear to New Zealanders. I say to them tonight: vote National and get ultra-fast broadband—fibre to the home, 100 megabits per second, triple play—vote Labour and make sure they get down to the dairy and buy some more biros so that they can write everything down. I tell members that the media strategy of not being able to get information from the rest of the world works well in Fiji, but it is not so good for New Zealanders, who want to know what is happening in the rest of the world. If they vote National, they will get ultra-fast broadband to the home. And I might say that it is not just the information highway we are building; it is the highway that cars and buses travel along. We are making sure that our main arteries are not clogged.

Let us move to the Budget and the area of skills and education. Let us go to that. There is $1.3 billion going into education—$1.3 billion. I thank the Minister of Education for strongly standing up for young children, those who want to have a tertiary education, and the kiddies going into early childhood education. I thank her for that advocacy, because even in a Budget where there is no spare cash the National Government is delivering. I had to laugh, because when we got to early childhood education, the only people in New Zealand who believe that we are not putting more money into early childhood education are the Labour Party muppets. That is right. The sum of $500 million is going into early childhood education in this Budget, and those members are the only people who do not believe it.

Let us go on to job creation. There are 170,000 new jobs being created as a result of this Budget. I tell members who does not like that: the Hobbit haters over there do not like it. That is right. The Hobbit haters do not like it. They would rather cuddle up to some Australian unionist. I say, no, we do not want the Australian unionist; we want the 3,000 jobs. We want The Hobbit. I will tell members the way that the videos are going to go when we are out there on the election campaign stump. We will be on Television One and TV3. I will be there with Mr Goff, if he lasts. I will be there with Mr Goff, and he will look down the camera and say to New Zealanders: “I did not really mean it when it came to not having The Hobbit done here. I would have had it done it, if I was Prime Minister.” No, he would not have. He would have backed the unions over the jobs. Well, we support the jobs.

I want to thank the Minister of Health. He has flown from round the world to be here today to shepherd the $1.7 billion more that is going into health. The truth of it is that he is a Minister of Health we can all be proud of. New Zealanders who have cancer wait no more than 4 weeks under a National Government. Under a Labour Government they needed a passport—they had to go to Australia. Under National they wait no more than 4 weeks. There have been 20,000 more elective surgery operations under this Government, there are 1,000 more nurses and 500 more doctors, and for mums and babies $55 million is going into maternity care. We have a lot to be proud of.

I take this opportunity to thank our confidence and supply parties, the ACT Party, the Māori Party, and United Future. We have worked very effectively with them over the last 2½ years. We do not agree on everything, but that is the nature of politics. We have been able to rely on our partners and they have worked constructively with us. I think we have put together a Government for the people of New Zealand, and I want to thank them. Members opposite are waving goodbye only because they are the ones leaving. That is why they are waving. Do not worry about that. Yes, Labour has a plan, and it is to not paint Premier House, to sack a Diplomatic Protection Squad agent, to sell the Beamers that Helen Clark bought, and, by the way, to borrow $45 billion more. That is Labour’s plan.

Dr RUSSEL NORMAN (Co-Leader—Green) Link to this

The Green Party is the only party that has the courage to say we need to increase Government revenue in order to reduce borrowing and avoid making damaging spending cuts. It is responsible to raise revenue, and it is short-sighted just to cut, borrow, and sell. We are the only ones who are prepared to say it.

The Green Party is the only party that has put forward a series of tax-broadening measures that would both raise revenue and begin the smart Green transformation of the New Zealand economy. Broadening our tax base will help guide our economy on to a more sustainable footing, with lower greenhouse emissions and a cleaner, more efficient use of water. Our vision is for clean, green prosperity for all New Zealanders—a smart Green economy operating as part of a fair society. That is the future the Greens stand for. That is the future that this Budget fails to deliver.

Faced with a Budget deficit, partly of its own making, this Government has chosen to cut services and increase debt. Faced with an economy staggering under high private debt, the Government has chosen to take us backwards with its attempt to mine minerals and mine water. But there are alternatives. Avoiding making damaging spending cuts and minimising debt by broadening the tax base would have been the most fiscally responsible approach to the 2011 Budget. National’s Budget is fiscally irresponsible. Running the largest fiscal deficit in our history is fiscally irresponsible. Bleeding social support and cutting services to pay for previous tax cuts is irresponsible.

Labour’s response so far is not responsible either. Putting the Government’s historical deficit on the nation’s credit card is the wrong thing to do, and I say to our colleagues in Labour that if they do not like the spending cuts, then they have to identify where the money will come from to keep those services. Broadening our tax base to save services, cut the deficit, and transform the economy is a genuine alternative to National’s “cut, borrow, and sell” Budget and Labour’s alternative.

We need to address the so-called tax switch and the claim that National’s tax changes were broadly revenue-neutral. There is a massive gap between what the Government says about its tax policy and the reality. It is the old tax switcheroo. National’s tax switcheroo works like this. It introduced two rounds of tax cuts that went mostly to the top end of earners, then it increased GST to pay for it, except it did not cover it, leaving a $3 billion hole in the Budget. So to cover the gap, National has slashed KiwiSaver, Working for Families, and the student loan scheme. The old tax switcheroo means that the chief executive of Westpac is given a $5,000-a-week tax cut, and to pay for it 500 workers lose their $10-a-week Government contribution to KiwiSaver. The old tax switcheroo is old National up to its old tricks. How is it that KiwiSaver and Working for Families, which support ordinary New Zealanders, get cut because they are deemed to be “nice-to-haves”, but massive tax cuts for banks’ chief executives are essential and must stay in place?

Last year’s tax cuts for those who have the most, and this year’s spending cuts for those who need the most, will lead to increased inequality in Aotearoa New Zealand. New Zealand already has one of the largest gaps between the rich and poor in the OECD. This Budget will make the gap worse.

Two rounds of personal tax cuts were unaffordable, and have not stimulated the economy. The GST increase did not deliver the additional revenue projected to cover the cost. The old tax switcheroo led to an increase in the deficit. The Government’s tax policy is one of the drivers of the record deficit. The failure of the Government’s tax policy has led to death by a thousand cuts, which the Government has chosen to deliver in this Budget.

Let us be clear about who is paying for the Government’s economic mismanagement and poor fiscal choices. The average working family will bear the overwhelming brunt of the cuts. That is not fair. The Government has cut $2.5 billion from KiwiSaver and hard-working New Zealanders. The changes to KiwiSaver announced today will make the scheme less attractive, and undermine our national savings efforts. The Government knows that its changes to KiwiSaver will undermine the scheme; that is why it is allocating $90 million less in this Budget towards start-up grants. We know that workers will end up paying the increase in contributions to KiwiSaver.

Over $400 million will be cut from Working for Families. That is money that helps put food on the table for many Kiwi kids. Those kids will be worse off. Over $600 million will be cut from accident compensation, so when Kiwi families get hurt it will be harder for them to get healthy. We know that the Accident Compensation Corporation is already refusing support for many injuries. Starving the accident compensation scheme of revenue through the non-earners account will make life worse for many New Zealanders. Kiwi families will have to retrain, because jobs are hard to come by. That will be harder because of the discriminatory changes that the Government is making to the student loan scheme. Many people will need to retrain later in life. Cutting their access to loans is wrong.

There are better and fairer alternatives to the Government’s mismanagement of the Budget and the economy. A comprehensive tax on capital gains, excluding the family home, is a fair way to broaden the tax base. It would send real signals to the property market to make houses more affordable for everyday New Zealanders. It also has the advantage of moving capital away from housing and into the more productive sector of our economy, assisting the transformation of our economy. Over time, a tax on capital gains would raise an additional $4.5 billion a year. To anyone who says the sky would fall if we tax capital gains, I ask them whether the sky has fallen in Australia, Canada, the USA, or China. All of those countries have a capital gains tax.

The International Monetary Fund, the OECD, and the Government’s own Savings Working Group all support a capital gains tax. In fact, the Savings Working Group said that half the increase in house prices from 2001 to 2007 was due to the preferential treatment of housing. The Prime Minister talked earlier about making housing affordable. Well, a capital gains tax is one of the single best ways that housing could be made more affordable. A similar case can be made for speculation in rural land, which is driving family farmers off the land. The Government’s inaction on capital gains has slammed the door on the Kiwi dream of owning one’s own home or farm.

A capital gains tax makes sense and is fiscally responsible. It would fairly increase revenue in order to lower Government borrowing, and it would move capital towards the more productive sector of the economy—towards business. It is the best thing we can do to make housing more affordable and to reignite the dream of young New Zealanders to buy their own home or their own family farm. There are alternatives to this Budget. We say that implementing a tax on capital gains is a smart and responsible alternative, and one that makes family homes and family farms more affordable for the average Kiwi.

The devastating earthquakes that struck Christchurch have ripped a hole in our country’s heart. The loss of life is unprecedented in our recent history, and our nation’s resilience was tested. Although the ongoing human cost of the quakes is immeasurable, it is our job to meet the quantifiable economic cost to ensure that Christchurch and Cantabrians can rebuild. One-off tragic events like the earthquakes should not be funded through permanent service cuts and permanent debt, which is what the Government is doing.

The Green Party has an alternative way to pay for the cost of rebuilding Christchurch that does not place a permanent mortgage on our children’s future through high debt and borrowing. A small, temporary earthquake levy, shared across those most able to pay, is the fairest and most compassionate way to rebuild our fallen city. It is what our neighbours in Australia have done in response to the devastating floods in Queensland. Australians stepped up and said that a levy was the fair way to spread the costs. We should do the same.

New Zealanders told us that they preferred a temporary levy to increased debt or spending cuts when we asked them in a UMR Insight poll. A temporary levy set at 1.5 percent on income between $48,000 and $70,000, 3 percent on income above $70,000, and 2 percent on the company tax rate would raise an additional $1 billion per year. Over 5 years that levy would raise the amount that the Government currently projects it will need to pay for the rebuild in Canterbury.

The Government’s approach—spending cuts and additional debt—carries great risks to our economic recovery. Spending cuts could send the economy back into recession, as we saw in 1991 after the “mother of all Budgets”. More debt also carries risks and costs. An additional $5 billion in Government borrowing, as proposed, will add $250 million per year in interest payments alone. A credit downgrade, due to increased Government borrowing, could see mortgage interest rates go up for Kiwi mums and dads, making life harder for thousands and delivering no benefit to Christchurch.

A temporary levy is a better and more fiscally responsible option that avoids the economic risks of the Government’s slash-and-borrow approach and more fairly apportions the costs of the rebuild to those most willing and able to pay. There are alternatives to this Budget. An earthquake levy is a more balanced way to fund Christchurch’s rebuild without going into debt.

The biggest opportunity the Government is missing in this Budget is the opportunity to lead our economy in a more sustainable direction. We are doing nothing new to position our economy in a way that maximises our natural advantages and “clean, green” brand. We could be a world-leading economy that grows green technology and green-collar jobs in a way that is sustainable, prosperous, and fair for all our people. The Green Party is proposing the use of smart solutions that utilise market mechanisms to shift the economy in a sustainable direction and help the Government balance its books at the same time.

Take greenhouse emissions, for example. The Government’s emissions trading scheme is so poorly designed that taxpayers are footing a bill of nearly $2 billion over 2 years to subsidise polluters’ carbon emissions. That is an extra $2 billion added to the worst deficit in New Zealand’s history just to subsidise pollution. Setting a proper price on carbon will drive the transition to a low-carbon, clean economy. It will also make those doing the polluting pay their way and it will free up over $1 billion from this deficit and render unnecessary the social service cuts that we heard about today. It is more than fiscal; it is about protecting our kids from out-of-control climate change. This Government is literally subsidising climate change in our country and climate change around the world, and it is an absurd way to spend $2 billion.

A charge on the commercial use of water is another market signal we should be sending. This eco-tax would help us restore some of the water to our rivers and ensure a sustainable economy at the same time. The latest OECD country report on New Zealand calls for a price on water for irrigators. A small charge of 10c per cubic metre of water for commercial irrigators would raise the best part of $1 billion per year. There are alternatives to this Budget. Introducing a price on all commercial water use and a price on greenhouse emissions is a responsible way to sustain our natural capital.

We also urgently need to reprioritise the infrastructure investment and expenditure to reflect the clean, green, low-carbon future we all want. Spending $16 billion over 12 years on new motorways, as the Government proposes, at the same time as petrol hits its highest price ever is not a smart way to run an economy. One might argue it is kind of insane to spend $16 billion on new motorways over 12 years. Spending $16 billion on new motorways, when commuters are desperate to go to work in modern and affordable trains and buses, is not a smart way to run an economy. Spending $16 billion on new motorways, which is not as job rich as spending on public transport, is not a smart way to run an economy. Let me be clear. The Greens are not anti roads. The question is: what is the best way to spend the next transport dollar? Sinking such large amounts of money into new motorways that commuters do not want and buses do not drive on is money badly spent.

These changes are just the tip of the transformation that is possible. A capital gains tax, a price on commercial water use, a real price on carbon pollution, and a smarter transport spend can set us on a path to clean, green prosperity, but this is only the beginning. I see a future for New Zealand in which Government, industry workers, and experts collaborate to ensure that we are at the forefront of clean, green technology, infrastructure, and business. The policy options for transforming into a sustainable economy are too numerous to detail here but include measures such as tax breaks for research and development into clean, green technology. It is about keeping our power companies publicly owned and using their size and scale to create a revolution in green power generation—a revolution that we can apply at home and export to the rest of the world. That cannot happen if our assets are sold, as the Government proposed today. This Budget does not deliver any of that. There are alternatives to this Budget.

Despite not being part of the Government, the Greens are part of creating a more sustainable economy. Our memorandum with National has delivered the successful Warm Up New Zealand home insulation scheme. It is an example of smart Green economics at work, and we congratulate the Government on recognising the wisdom of this policy. New Zealand will reap economic benefits in health and energy savings worth over $500 million from the 100,000 homes insulated to date. An additional 2,000 jobs will be created over 4 years. Most important, 300,000 New Zealanders, half of them on low incomes, will be warmer and healthier this winter thanks to this scheme. This is an example of the sorts of Green alternatives that deliver for the economy, for people, and for the environment. Sadly, the Green homes scheme is a shining light in a Budget that is otherwise lacking in imagination.

The Green Party recognises the challenging fiscal circumstances that surround this Budget and we acknowledge the hard work and sincerity of the Minister of Finance, but we do not believe that this is the right Budget for today or for tomorrow. We cannot endorse a Budget that fails to implement smart Green revenue measures that would reduce Government debt, avoid making damaging spending cuts, and set us on a path to developing a 21st century smart Green economy. We cannot endorse a Budget that increases the gap between those who have the most and those who need the most. We cannot endorse a Budget that undermines our “100% Pure New Zealand” brand and places us firmly on a path of ongoing environmental degradation.

There will be other Budgets and other opportunities to put our country on a path towards clean, green prosperity for all New Zealanders. The tragedy is that this Budget has missed that opportunity.

JOHN BOSCAWEN (Leader—ACT) Link to this

New Zealand was once the most prosperous country in the world. However, by the 1960s our fortunes had begun to decline, and that decline has accelerated over the last 30 years to the point where we are ranked just 26th in the OECD world rankings. We now have a society with major social problems and intergenerational dependency, and with no immediate solutions to that. As the Hon Tariana Turia often reminds us, welfare dependency has robbed many Māori of self-reliance and dignity. We have an education system that on the one hand generates our best and brightest so they can be snapped up by the world’s leading employers in Europe, the US, and Australia, but that on the other hand fails many students, with one child in four leaving school without National Certificate of Educational Achievement level 1. We all know the statistics are much worse for Māori. We have a health system that condemns many people to long waiting lists, with only the affluent or the hardest-working able to put themselves through the health system, with private medical insurance.

The founders of the ACT Party—and two of them are in the House this afternoon—saw these problems 18 years ago when the party was formed, and they foresaw that without significant structural reform these issues would only get worse. Sadly, the fears that they had 18 years ago have come to pass. The last 18 years have been a tragic loss for New Zealand, with little difference between the solutions offered by both Labour and National. The Prime Minister confirmed this just yesterday, when he confirmed that we are actually poorer today than we were in 2004.

The Budget presented an opportunity to finally show some real leadership and some real vision for New Zealand, but, sadly, both are lacking in this Budget. For months the Minister of Finance has been warning New Zealanders that we cannot go on borrowing in excess of $30 million a week, and that we have to get our house in order and exercise tight restraint so that we can get back into surplus by 2015. What has he delivered? He has delivered little more than a commitment to make a few timid reductions in programmes introduced by the last Labour Government, and even then those reductions do not start until 2012. Over the next financial year the Government proposes to borrow over $13,000 for every family in the country, to add to the thousands of dollars that have been borrowed in the last 3 years. Cutting back spending programmes that recipients have come to enjoy would have required real political courage, which, like the last Labour Government, this Government seems to lack. But someday soon people will realise that the goodies that the Government is handing out are charged back to our children and our grandchildren.

This Budget provided an opportunity to make comprehensive changes to the way that we offer our social programmes, whether it was through providing choice in education, greater private sector involvement in the health services, or the adoption of the recommendations of the recent social welfare task force. Instead, the finance Minister has chosen to fiddle. However, whether or not we liked it, comprehensive change would have meant the need to make sacrifices across the board. ACT strongly believes that we need to protect the most vulnerable 25 percent, but that at a time when the Government is borrowing over $200 a week for every family, and will continue to do so for at least the next 12 months, the rest of us need to be prepared to make sacrifices. We need to make both short-term and long-term changes. In the short term we need to get rid of wasteful and unnecessary spending, and in the long term we need to improve productivity in health, education, and welfare.

Today the Minister of Finance announced minor changes in student loans—wow! This is the same man who, when in Opposition, called interest-free student loans an election bribe of unprecedented proportions. There is no such thing as a free lunch, but we now incentivise young 17, 18, and 19-year-old students to go out and borrow as much as they can, while leaving their holiday earnings in their bank accounts to earn interest. They would be crazy not to do that, and in fact they can pay those loans back in terms of devalued dollars—if they pay them back at all. Not only is it unfair for the parents of children in Ōtara and Porirua to subsidise the children of the better-off, who are more likely to go on to tertiary education, but we have created a system that incentivises young people to take on debt for courses that they neither need nor use, and who are then saddled with debt for the rest of their lives.

I ask the parents and grandparents of those students whether they really want to see their children and grandchildren permanently emigrate overseas, and be condemned to talking to them by Skype each night, or whether they would prefer to see their children and grandchildren grow up in a prosperous country whose income levels not only equal but exceed those of Australia and are the envy of the world. It would be a country with low marginal tax rates that incentivised work, savings, and personal responsibility, a country that truly delivered a world-class education system—not just for some New Zealanders but for all New Zealanders—and a country that allowed not just the wealthy but all New Zealanders to have access to a proper health system.

In the same way that the poor have subsidised those with student loans—if not through the income tax they pay, then certainly through GST—the poor have also been net contributors to the very generous KiwiSaver subsidies. Although KiwiSaver has been an undoubted success, and the cost blowout is due to that success, the poor and disadvantaged are the least able to make the minimum 2 percent contribution that triggers the various taxpayer subsidies.

The Budget also has forecast a significant increase in the cost of New Zealand superannuation. We would expect that increase to occur, as a result of rising incomes and the growing number of New Zealanders reaching the age of 65. That number is set to balloon over the next 15 years, to a point where it will no longer be sustainable. Most New Zealanders understand and accept that, and certainly those under the age of 55 do. Already, other countries are signalling an increase in the age of entitlement, as people live longer and the baby-boom bubble works its way through. Australia’s Labor Prime Minister, Julia Gillard, recognises that too, and Australia’s pension age is set to increase at the rate of 6 months every 2 years, beginning in 2017 and reaching 67 years in 2023. ACT agrees with that approach. However, we would not change the age of entitlement for those already 65, or close to being so. We would actually be honest and tell those people who are in their 50s about that now, in order to give them the maximum time in which to prepare for that.

This Budget is a missed opportunity. It was an opportunity to radically transform our growth prospects, and to show leadership and courage to the nation. The ACT Party has policies that can transform this nation, address our underlying social problems, and return our nation to the world leadership position that it had over 50 years ago. ACT will be going out there and telling the story, and we will be telling it honestly. We heard less than 15 minutes ago from Russel Norman, who talked about a $2 billion subsidy being paid to polluters. But Russel Norman did not tell New Zealanders that we are all paying more for electricity and for petrol, to subsidise those who planted forests—forests that were actually planted, for the great bulk, before 2008. All New Zealanders have to pay for that. We in the ACT Party look forward to taking our policies to the electorate over the next 6 months. I say to the Prime Minister that rather than encouraging people to vote for National or Labour, we will tell them to vote for ACT. We in the ACT Party will look forward to taking on both Mr Key and Mr Goff at the hustings. We welcome the election—bring it on!

Hon Dr PITA SHARPLES (Co-Leader—Māori Party) Link to this

Tēnā koe, Mr Speaker. Tēnā tātou e te Whare nei. The much anticipated “zero Budget” was always going to be difficult for the Māori Party. Our relationship and confidence and supply agreement with National binds us to support Budget measures that we may or may not like or agree with.

This Government came to power as an economic crisis rocked the world, but over the last 3 months the exceptional circumstances of the Canterbury earthquakes and the Pike River disaster have made the sharp edges even more precarious. An economic recession always has the most direct impact on those who are already worst off, so many families who are on low incomes, in casual or unskilled work, or unemployed, and who have dependants, are hit first and hit hardest. On top of that, any Budget cuts to restore the national economy will have the greatest effect on those who are the most dependent on Government support.

Many are Māori, and our philosophy of whanaungatanga requires us to support and advocate for them. But the Māori Party stands on our kaupapa Māori for all New Zealanders. Manaakitanga and kotahitanga demand that we give priority to te pani me te rawa kore—the alienated and the dispossessed. These are values handed down by our ancestors that continue to define us as tangata whenua and as Māori. We also look to our tikanga tuku iho for solutions to entrenched social and economic problems. The challenge for all of us can be expressed this way: whaia te rangatiratanga—seek control of one’s own destiny. That is what drove the Māori Party to enter Parliament, and that is what the Māori Party is looking for in this Budget.

We see rangatiratanga in the Māori education budget. Education for Māori is the way we maintain our language and cultural heritage, and pass it on to future generations. But education is also the critical pathway out of the poverty trap. It enables individuals and families to seize the chance to learn new skills, gain new experiences, support their families, and make greater contributions to their communities. New Zealand’s education system has a responsibility to deliver education that nurtures the identity, language, and culture of Māori learners. This Budget delivers $60 million over the next 3 years to build more kura kaupapa Māori. It provides $3 million of new money over 3 years to support development of a new Māori curriculum and resources. There is $9 million over 4 years to support iwi to develop school and community-based Māori language learning, and at long last kura kaupapa Māori get the same support for school transport as other schools, with the allocation of $8 million in this Budget. Yo! There is also $6.5 million so that all—all—decile 1, decile 2, and decile 3 primary schools can run family-based literacy programmes. We have piloted these programmes in South Auckland and west Auckland. They are successful and involve all the family. There is $17 million over 4 years so that another 20 schools can take up the Kotahitanga teacher-training programme. Kotahitanga helps staff to become more aware of how cultural differences influence their effectiveness as teachers. So even in tough times this Government is maintaining an investment in our future as a Treaty-based nation through this education budget.

In the Māori Affairs vote, we have given priority to three areas hei whai i te rangatiratanga: Whānau Ora, te reo Māori, and Te Tiriti o Waitangi in the constitution. The sum of $30 million over 4 years for Whānau Ora will maintain the momentum of this radical approach to Government service delivery. This has been pioneered and driven forward by my colleague Tariana Turia. Whānau-centred services will be expanded into new areas and are to be served by eight new provider collectives. Whānau Ora calls for an integrated approach requiring agencies to coordinate and collaborate, and thus it promises efficiencies in service delivery. But the real promise of Whānau Ora is that it empowers whānau to take control of their destiny by taking responsibility for their situation. So instead of whānau being further disempowered by Government agencies telling them how to live their lives, services are tailored to support the family to deal with the key issues as they see them. With whānau themselves getting into the driving seat, support services will be more effective. As whānau achieve rangatiratanga, the need for ongoing Government support diminishes.

Also in the Māori Affairs budget we have found $2 million to maintain community language initiatives, while we follow through on Te Reo Mauriora—a report that charted a clear direction for revitalising te reo Māori. Te Paepae Motuhake, the independent panellists who wrote the report, were quite clear that whānau themselves must take the primary responsibility for speaking Māori at home. The role of the Government is to support. With this Budget we continue to do that while we develop a new Māori language strategy.

Another $2 million has been found to engage the nation in a discussion on New Zealand’s constitution. This is of great importance to Māori because one of the issues on the table will be the place of Te Tiriti o Waitangi in our constitution.

Finally, I must mention the settlement of a longstanding land issue near Taumarunui, with an appropriation of $250,000 to Karanga Te Kere trustees. This compensates them for not having been included in earlier settlements of injustices resulting from perpetual leases imposed on Māori lands.

There were areas we needed to respond to, which were in urgent need of attention. I am thinking of the $12 million my colleague Tariana Turia has secured for addressing the blight of rheumatic fever, and the reallocation of $11 million in the family violence field to focus on those who most need frontline services for families in crisis. Meanwhile this Government is following through on the work of the Māori Economic Taskforce by establishing an independent panel to develop a Māori economic strategy. Iwi and Māori groups are actively involved in infrastructure development, such as Ngā Pū Waea in the Rural Broadband Initiative, and in environmental protection—for example, freshwater rights and management, and the emissions trading scheme. Treaty settlements continue apace. Iwi are looking for opportunities to invest in public-private partnerships and in exporting new products to new markets. So much has happened over the past 3 years.

The Māori Party has been able to secure many gains and to avoid some losses by sitting at the Government table and engaging with the issue through face to face debates. Kanohi ki te kanohi i te tēpu, we have been able to achieve these gains. There will be measures in this Budget that disappoint us and that our supporters will oppose, but we must not lose sight of the significant gains we see here too. The Māori Party’s manifesto at the last election called for the Government to borrow prudently to protect vulnerable citizens from the worst impacts of the economic recession, and we believe that the Government has done that. Things could have been a lot worse. Looking at this Budget, we remain convinced that maintaining a working relationship within Government is in the long-term interests of our constituents. The Māori Party will support this Budget.

Hon JIM ANDERTON (Leader—Progressive) Link to this

This Budget signals that National has decided to preside over a dying economy. Why? Because the most important social and economic investment in the future of any country is its investment in education. We just heard the Māori Party congratulating itself on that. It should look at the facts.

This Budget says that over the 4 financial years coming up from 2011-12 to 2014-15 Government investment in education will increase by $197 million. That is less than $50 million a year in a Budget of $12,000 million. That is a 0.004 percent increase in education in each of the next 4 years. If that is a triumph for the Māori Party, I would hate to know what a failure might look like. Provision for welfare benefits—that is, unemployment, sickness, and invalids benefits—in the same period is not a $197 million increase; it is a $3,153 million increase. There is $197 million for education and $3,153 million for unemployment, sickness, and invalids benefits. That is why I say that this Government has decided to preside over a dying economy. Twice as much money is provided for welfare benefits than the total provision for health and education combined. These facts would be simply ludicrous in any Budget that offered itself for the future of the country if they were not so tragic.

Let us look at the economy that this Government inherited. In 2008 unemployment was the lowest in the OECD. It was 3.5 percent of the labour force. Because there were jobs, people moved off benefits in record numbers. In April 2008, just 3 years ago, 17 percent of children in New Zealand lived with someone who was reliant on a benefit. Today, after 2½ years of a National Government, unemployment is back up again to the levels last seen the last time National was in office, in the 1990s. Benefit numbers are up again as well, because the real jobs are not there. More than 32,000 more children are reliant on benefit families today than in April 2008.

Because New Zealanders are not in work and earning money, the books have turned to a sea of red. In 2008 the Government had a fiscal surplus of $2.7 billion. In the fiscal update just before the 2008 election the Government accounts were forecast to remain in surplus for the forecast period. The Crown was contributing to the Superannuation Fund and had no net debt whatever—none. Today the Government announced a fiscal deficit of $17 billion. But look where the deficit has come from. The income tax cuts on 1 October last year cost $17.8 billion over 4 years. The top 10 percent of income earners alone got an income tax cut worth $44 million a week. I wonder how many of them were Māori. The Government is borrowing $2.5 billion a year for tax cuts for the top 10 percent of income earners alone.

This Government likes to blame the state of its books on the previous Government. I am sick of hearing that because it is simply not true. Its problem is that it cannot take personal responsibility. It has been there for 2½ years. When on earth will Government members start to put their hands up and say it is them, not the other guys before them? They have to find someone to blame because they cannot fix the problems. They blame the global crisis; they blame the earthquakes. Those events made things worse, that is true, but bad management has made the economy worse still.

The National Government was going to catch up with Australia. Bill English and John Key were going to close the wage gap with Australia. Yeah, right! Australia went through the global financial crisis, just as we did. Australia has been hit by devastating national disasters too, like floods and the unprecedented hurricane in Queensland. Here is what the Australian Treasurer had to say about his Budget delivered last week: “Our economy has been hit in the short term by the recent natural disasters which have devastated families and communities.” But he went on: “Growth is strengthening … Unemployment is low and is set to fall even further. We’ve seen over 700,000 jobs created since we came to Government”—National cannot say that; it has lost jobs—“and we expect to see a further half a million jobs added by mid 2013.” Not all of those jobs will be in the mining industry, I can tell members. He further stated: “Our public finances are in relatively good nick. We’ll be back in the black in 2012-13”. So much for New Zealand catching Australia.

All that this Government has to say about why Australia has weathered the storm is that Australia has mining, and that is all there is to it. That claim ignores the fact that we have been enjoying the best commodity prices in our history. We have had the most favourable terms of trade in our history.

The problem is that National has no idea how to fix the economy, and it still has not. It announced that to us in bold terms today. John Key came into office promising tax cuts that everyone would share in, and promising that those tax cuts would help us catch Australia. Yeah, right! His Government has failed on every one of its own targets. Most New Zealanders did not get a net tax cut; they got a small cut that was cancelled out immediately by the rise in GST and the subsequent price rises that soared ahead of their incomes.

Imagine if the National Party had produced an election manifesto in 2008 that said: “If you vote for us, we will increase GST to 15 percent, cut Working for Families, cut student loans, and give tax cuts costing $44 million to the top 10 percent of income earners.” National would not have dared to set out that plan before the working people of New Zealand, but that is how it has governed. It was elected on promises that it could not keep. Governments in the 1980s and 1990s did exactly that, and they were thrown out. It is interesting that John Key was not here then. He was dealing in the money markets around the world, many of them speculating against the New Zealand dollar, as a matter of fact.

National did not trust New Zealanders enough before the election to tell them the truth: that tax cuts meant spending cuts and deficits. That is what they mean. Today the Government does not trust New Zealanders enough to tell them the truth about the cause of the deficits now. The sort of Government that is too weak to front up to the truth is a Government that is too weak to make the changes New Zealand needs.

There is a predictable outcome to this failure: people suffer. The more vulnerable they are, the less resilient they are and the more they suffer. A health report on young children in New Zealand was presented recently, and some parliamentarians went to hear it at a morning breakfast. We found that children are being admitted to hospital for diseases that are clearly linked to poverty in greater and greater numbers. There were an extra six hospital admissions for infectious diseases and respiratory diseases every single day in 2009, compared with 2 years before, and the figures are now worse. When families do not have adequate incomes and jobs, their children live in poor housing conditions, they lack nourishment, and they are not warm enough. Their health suffers, and their opportunities suffer even more. How much harder is it for children in the increasing thousands of poor homes this Government has created than for a child in one of the affluent and privileged homes that are already heavily favoured? This Government should be ashamed of itself in that regard.

In 2008 the main breadwinner was unemployed in about 7 percent of Māori and Pacific families. Today that figure has doubled: 14 percent of Māori and Pacific families do not have someone to work and bring home a wage or a salary. I heard the Green Party applauding the Māori Party when it was saying how great it had done. It has not done great at all; it has done appallingly badly. That is the Māori Party’s legacy for supporting National. Its members are deluding themselves if they think otherwise.

What does it mean in practice? Half of the kids whose families are living in severe hardship do not have suitable wet-weather gear, because of the cost; one-third do not have a pair of shoes in good condition; they miss out on the experiences of growing up, such as owning a bike or a personal computer; two-thirds miss out on school outings or involvement in sports; and half miss out on school books or a visit to the doctor because of the cost. None of those things are provided for in this Budget. In fact, the health budget is an appalling document, which shows that the health of New Zealanders—in terms of primary health care, in particular—will go to hell in a handcart.

This Budget is a return to the failed policies of the 1990s. Those policies failed people then, and they will fail them again. They will fail to create jobs, to lift incomes, and to create a stronger future for New Zealand. This is a miserable excuse for a Budget, and one of the worst I have ever seen in my experience of politics.

Hon PETER DUNNE (Leader—United Future) Link to this

In this morning’s newspaper there was an announcement that New Zealand scientists had discovered a series of planets that floated independently through the solar system. I think, in listening to the responses from parties opposite this afternoon, that we have discovered some of those planets. The arguments that members opposite have advanced really bear no relationship at all to contemporary reality. Let us just take a few moments to reflect upon that reality. The first thing is that since 2007 the world has been going through the greatest economic crisis since the Great Depression. It is no coincidence that northern hemisphere economies are deeply in debt, that the American economy is on its knees, and that New Zealand has had its share of shocks. To try to suggest, as members opposite do, that somehow those events have no impact on New Zealand’s situation today is utterly fanciful. Then we add in two major earthquakes in Canterbury in the last few months, both of which, by international standards, have been highly significant in terms of the costs they have imposed physically, emotionally, socially, and financially on the people of Canterbury and the country as a whole, and we also add in the Government’s responsibility to make good that physical damage as best it can. The Government has to pay for those measures, and it does so in this Budget. It is sheer folly, ignorance, and stupidity to say that somehow those figures have no impact on the state of our Budget and our books today.

I think that what most people looking at this Budget will conclude is simply that most New Zealand households know that when times are tough we make adjustments to our budgets to reflect our circumstances. We do not go looking for the Labour money-tree at the back of the garden, because it is not there; nor do we go and burn everything down in the hope that by destroying the village, in the way Dr Brash would, we can rebuild it. We make prudent, wise adjustments, with a little bit of adjustment here and a little bit of adjustment there, but fundamentally we enable ourselves and our families to get through the difficult circumstances, and to look forward to a positive future. That is exactly what this Budget has done. Before the Budget, there was a huge amount of hue and cry about changes to KiwiSaver and about a return to the days of uncertainty in terms of retirement savings provision. In fact, the changes announced today are minimal. They have a big fiscal impact, but in terms of individual savers and the certainty surrounding the scheme they are minimal.

It is worth reflecting on why the changes have arisen. To put it very simply, KiwiSaver has exceeded everyone’s expectations in terms of its success. It was originally projected to have 700,000 members by 2015; in 2011 it has more than double that number at 1.7 million members. We cannot therefore acknowledge that somehow there is no additional fiscal cost to the Government because of the member tax credit, the kick-start, and the other provisions that the Government provides as part of the scheme. So the Government has had to, quite prudently, say that to secure the sustainability of KiwiSaver for the future, we need to make some adjustments that will have a significant fiscal impact, but will not deter significantly the level of saving that is going on. That is precisely what has happened. To come back to my household analogy, it is exactly what a household would do in similar situations.

I happen to believe that the Government could go further. I strongly favour KiwiSaver being made a compulsory national savings scheme, and I believe that will happen eventually, because that will lock in absolutely the security and future of the scheme, and it is really what most New Zealanders are looking for. It would then enable us to have a much more balanced approach to the whole question of retirement savings and long-term provision in the future.

Much was made of the projected changes to the Working for Families regime. Again, that was a scheme that far exceeded expectations from the time of its introduction in 2004. It has been successful; it has delivered uplift to a number of families, and that is good. But the reality is that it has also come at a cost. I do not think any of the original authors of that scheme would have acknowledged then that the flavour of the scheme would be as it is today.

So there are issues that need to be addressed. We started in the Budget last year by addressing some of those issues in relation to definitions of income for eligibility for Working for Families tax credits. In this Budget the Minister quite prudently makes some adjustments to the abatement rate and to the question of those people who have children over the age of 16. The time frame for their implementation—over the next 8 years—suggests a very modest impact for most people, but, again, a significant fiscal positive for the Crown. I think when one looks at the overall context in which the Budget is performed, one would have to conclude that this is very much a Budget for the times.

That is not to say there were not things that could have been included in the Budget. I welcome the additional spending going into the health sector. I particularly welcome $80 million more going into the provision of medicines. That will see another 32,000 people get access to the medicines they need. On top of the funding advanced in the previous two Budgets, that means that somewhere in the order of 270,000 New Zealanders now will get more access to medicines than they would have at the time this Government came into office. That is a tremendous achievement, and will be beneficial for a significant number of people who rely on medicines to maintain a good quality of life.

In terms of health, though, I think the next big change we need to start to address is in the area of prevention. I believe very strongly that when we are spending about $800 to $900 a day keeping a person in a public hospital, we ought to be moving, over time, to a free annual warrant of fitness health check, initially for over 65s but ultimately for everyone in the population. Prevention, and the level of expenditure up front to achieve that, is far better and far more cost-effective than the cure further down the track.

A lot was said in and around the Budget, and in the speeches today, about cracking down on those who do not pay their fair share. I reject the arguments raised implicitly—because he did not say it explicitly—by the Leader of the Opposition about tax increases. I tell the House what the outcome was of the additional funding advanced to the Inland Revenue Department last year to crack down on tax avoidance, tax evasion, and people who were simply failing to pay their tax on time. Last year’s Budget put in place approximately $120 million over a 4-year period to put more effort into that particular area of activity. It has already returned $115 million in additional revenue in just 9 months. We are getting about 13 percent more than we expected; we have somewhere between five and eight times the amount invested being returned in the amount collected. That is sending some very clear signals about tax avoidance and tax evasion in New Zealand, and the Government’s intolerance—and proper intolerance—to that practice continuing.

Finally, before I finish I acknowledge the additional funding included in this year’s Budget for Wellington urban rail services. By my quick calculation, that brings us up to about $300 million over the last few years. It is great to see the new trains running, but I say to Tranz Rail that the new trains and the new equipment have to be matched by a new attitude in terms of the delivery of service. Tranz Rail’s passengers will increase, but they will leave very quickly if they find surly, sloppy service not matching the quality of the infrastructure now being provided.

Overall, I think New Zealanders can feel confident that this Budget is a prudent step towards managing our country’s finances in a very difficult and stressful time. It sets a course for the future. It gives heart and confidence to the people of Canterbury in their hour of need but also gives assurance to New Zealanders of every generation that their circumstances have been protected, and that their circumstances are very much at the forefront of the Government’s attention. Frankly, the lack of alternatives put forward this afternoon by Opposition parties leaves New Zealanders with a very clear sense of the options they face come 26 November, later this year.

Hon GERRY BROWNLEE (Leader of the House) Link to this

I move, That this debate be now adjourned.