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Budget doesn’t tackle BOP crisis - Rod Donald

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Budget Speech Notes

Budget doesn’t tackle BOP crisis

Rod Donald MP,
Green Party Co-Leader,
20 June 2000

The first budget of the new Labour led Government represents a turning point for New Zealand. While the budget isn’t perfect it is at least heading in the right direction in many respects and is a marked contrast to National’s nine disastrous efforts.

I couldn’t believe Wyatt Creech started his budget speech last week with a motion of no confidence in the Government. I don’t think he did either, judging by his lack of passion or expectation of success. It is time we ended this tired old farce. I know Mr Creech and his leader Jenny Shipley would agree and I look forward to the MMP Review Committee recommending changing the rules to introduce “constructive votes of confidence” which would require a party moving such a motion to know that it had the numbers or risk the embarrassment of not winning endorsement.

The content of National’s no confidence motion was equally farcical. It came one week after a report prepared for Treasury revealed that income inequality grew in New Zealand between 1981 and 1996 and that we have one of the widest gaps between rich and poor in the developed world. How can the party which callously cut benefits in 1991 and deliberately undermined the livelihoods of working people by forcing through the Employment Contracts Act have the audacity to claim that this budget won’t ensure a better future for all New Zealanders?

Quite frankly I’ll be happy if it ensures a better future for 90% of New Zealanders because according to the Treasury report 90% of us were worse of in 1996 than we were in 1981, with the bottom 10% experiencing a significant reduction in real incomes. This conclusion is reached regardless of how income is measured: individual or household, before or after tax, from different data sources and after adjusting for changes in household size and composition. The increase in inequality was proportionately larger over the period than most other developed countries with only the United States, out of the 29 countries in the OECD having a larger one.

The report show that the income gap grew the fastest in the late 1980s and continued through the so called economic expansion of the mid 1990s. The study is therefore an indictment on both the last National Government and the previous Labour one. At least by committing to closing the gaps the Labour led Government has acknowledged the mistakes of the past. National has yet to learn the same lesson. Their promotion of selfish individualism instead of strong healthy communities continues to impact with disastrous consequences.

The new Government’s first budget was undoubtedly overshadowed by the announcement on the same day of the March quarter balance of payments figures.

The annual deficit of $8.5 billion can only be described as a sick state of affairs. Even after deducting the cost of the Te Mana frigate the current account deficit is still $2.2 billion more than the March 1999 year. Clearly the extent of the deficit came as a shock to the Government as the actual March figures were $450 million worse than forecast in the Budget Economic and Fiscal Update released that same afternoon.
The glaring omission in the budget is any meaningful action on the balance of payments crisis. Following the announcement of the December current account deficit in March the Treasurer predicted the situation was going to get better. It has, but not significantly. We continue to live well beyond our means. While the quarterly fall in the deficit would have been $166 M if the one off impact of Te Mana is removed that gives no cause for confidence given that this is traditionally the best quarter of the year. The balance on goods shows a deficit of $780 million for the March year, the first time we’ve had a good deficit since 1986, and a turn around on the $1.4 billion surplus for 1999, while the balance on services deficit is less than half last year’s at $524 million.

Both goods and services are eclipsed by the balance on investment deficit of $7.79 billion, the worst March year deficit in New Zealand’s history. Ironically, the driving factor behind this increase is the improved profitability of foreign owned businesses, especially in the financial sector. As our economy grows so does the drain of profits off shore. And the profits are draining off shore rather than being re-invested. Foreign owned businesses remitted 87% of their earnings overseas in the year to March. An even larger burden was the increase in interest payments on foreign debt to unrelated overseas parties. The announcement the day following the budget that New Zealand’s overseas debt has risen by $6.7 billion to $109 billion adds to our economic woes.

Yet it would seem that the Government’s solution to this problem is to make it worse. In the same way that increasing exports is seen as the answer to the uncontrolled influx of consumer good imports, encouraging foreign investment is now the solution to the outflow of business capital. I was horrified to learn in the media that Deputy Prime Minister Jim Anderton is promoting a strategic investment grant programme designed to attract overseas firms. Whilst details are yet to be finalised, according to the Dominion, it is understood that grants of up to $1m a project are under consideration. In addition Trade NZ has been given an extra $3m in the budget to help attract and facilitate overseas investment.

The objective of creating employment is laudable – and I want Government to do better than 5% level of unemployment projected three years out - but surely the experience of the last decade or so suggests that this is not the right way to go about it? At the very least, we need a decent national interest criteria in place to ensure that any overseas investors are actually going to add to our economic social and environmental well being before we give them tax payer funds.

This week’s announcement that foreign owned company Goodman Fielder is closing the Fleming’s oatmill in Gore should be a lesson to us all. Gore and Creamota are synonymous and have been for 100 years. The mill is an example of the pioneering spirit, cooperation and marketing savvy which built this nation. The mill survived two devastating fires and a war but eventually succumbed to foreign control. As the New Zealand Grain’s Council Chair Neil Barton said “the closure of Gore’s oatmill will prove devastating”. The 50 farmers who supply oats to the mill have no contracts for this summer and little prospects of a replacement crop. Thirty six staff at the mill have at the most six months work before it finally closes down and Goodman Fielder are shifting the plant to Australia to make sure that local farmers and workers can’t get together to take over the business and run it themselves.

Goodman Feilder claimed the Gore plant is unviable as an ongoing commercial operation because its operating at less than one third of its capacity. Yet Flemings operations manager concedes that the Southern area produces some of the best quality oats in the country and there is no question about the mills profitability. The transfer of the plant to Australia doesn’t just spell the end of jobs at the mill and income for farmers and all the consequences that has on the local district. It also increases the imports of another basic food stuff from overseas, upping our merchandise trade deficit even more and making it harder for our exports to get it back into the black.

When you go to the supermarket these days you are left wondering whether New Zealand farmers are capable of producing quality food stuffs when half the biscuits – Arnotts - and the wheat used to make them, comes from Australia; when something as basic as Watties beef and vegetable soup is also imported from across the Tasman – I thought we were world leaders in growing vegetables and raising cattle – and now this. It’s not the farmers fault . Foreign control is the problem.

The question is: when will people say enough is enough. There are two challenges facing us as a nation. The first is to buy New Zealand made and the second is to buy back New Zealand. The first is something we can start doing right now. Every time we go shopping we should look for New Zealand made products because they create jobs for our own people, our neighbours our friends our family. I was intrigued by local National MP Bill English’s reaction to the closure of the Fleming Mill at Gore. He said in the Otago Daily Times “I don’t like the idea of having to eat Australian porridge”. Well he doesn’t have to. There is an alternative. When Goodman Fielder finally pull the plug on Gore I would urge him to shift his loyalty to wholly New Zealand owned and operated Harraways products. He can choose Scotch Oats, Rolled oats and even organic whole oats and continue to enjoy his porridge in the expectation that buying their product might help to increase demand sufficiently to re-employ the Gore Mill workers and Southland Farmers who have lost their income.

Individually as Members of Parliament we can lead by example and collectively the Government can show leadership. It has the perfect vehicle in the form of the Industrial Supplies Office. Only last week the deputy prime minister Jim Anderton reported that the ISO helped to create or retain 215 jobs last year because it was able to source New Zealand made goods for Government departments instead of them importing products. Import substitution creates jobs, saves welfare payments, increases tax revenue, increases spending power and reduces our overseas debt. How could anyone argue against it? Yet last year only 10 government departments took up the opportunity to use the ISO. The Ministry of Commerce didn’t even use their own office.

That has to change and I am pleased to hear that this Government is taking steps in that direction. But these aren’t backed up by budget commitment. My understanding is the budget for the Industrial Supplies Office is the same as it was last year. Compared that to the commitment the Australian Government puts in to its equivalent organisation. Over there they have even extended the service to the private sector to facilitate across the board import substitution.
It makes sense to be more self reliant. Events in Fiji show how our dependence on imports make us vulnerable in times of strife. We are also increasingly vulnerable in ecological terms. Global and indeed national transport of goods depends on cheap fossil fuels. These fuels are burnt in ships, cars and trucks. The results are destroying our climate, polluting our air and water and threatening our health. Promoting local self reliance not only reduces unemployment and therefore contributes to strong communities, it is fundamental to tackling global climate change.
(My time ran out here. I would have gone on to say….)

But we mustn’t stop there. It is time to “Buy Back New Zealand”. Unless we want to increasingly become hostages of foreign capital we need to reduce our consumption and use the savings to invest in our own economy. Instead of the Government giving money away to overseas investors that money should be spent on helping New Zealanders to invest locally. Even if the Government put that money into a Buy New Zealand campaign it would generate more jobs than fickle foreign investment.

I know many people simply don’t have the money to take a stake in local enterprises. One significant step the Government could take to facilitate this, and at the same time encourage saving and reduce consumption, would be to give employers an incentive to provide their staff with subsidised superannuation. If the Government extended the six cent tax saving on employer contributions to employees earning in the top tax bracket to all workers then I believe good employers would respond by offering their staff subsidised superannuation. This in turn would create an incentive for employees to make a contribution and together funds would be built up which could be used to build up or buy back New Zealand businesses. More New Zealanders would gain a stake in our economy and more Kiwis would get to share the rewards.

Turning briefly to the Greens budget package I am obviously pleased that the Government was willing to adopt the range of initiatives we negotiated with them. The budget package is a working example of the protocol we are developing with the Government. And I believe sets the scene for future constructive budget negotiations. I am particularly delighted that one initiative to support the work of environment centres has been approved. My first full-time job was with the Canterbury Environment centre and I know what a struggle it is for organisations like it to carry out their very important front line job of communicating conservation and environment messages to the community. Jeanette has talked about several initiatives in the Green package and my other colleagues will explain aspects of the package which are dear to their hearts.


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