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The Father of All Give-Away Budgets

The Father of All Give-Away Budgets: ACT Alternative Budget 2002 Speech by Richard Prebble

Sunday 19 May 2002 Richard Prebble Speeches -- Economy

Speech to launch of ACT Alternative Budget,

Crowne Plaza Hotel, Auckland, Sunday, May 19, 2002

On Thursday the country will hear Michael Cullen deliver the Father of all election-year give-away budgets.

Having inherited a rural boom, the Labour/Alliance government is the beneficiary of huge tax revenues. Some farmers who did not pay any taxes for 15 years, will pay $500,000 in tax this year.

On Thursday, Dr Cullen will announce record tax revenues. The Finance Minister will also announce optimistic new Treasury economic forecasts for growth.

Political commentators don't realise what a huge difference just a small change in growth forecasts can make. If we take the Reserve Bank's latest growth forecast, we see that it is 2.75 percent. This will produce extra tax revenue of $2 billion over four years.

Based on these two figures, Dr Cullen will announce new spending. Last December, he announced new spending for health of $400 million a year over the next four years, based on a Treasury forecast of growth of 1.9 percent.

On the new growth forecast, and extra tax, Dr Cullen can, and I believe he will, announce that he has increased health expenditure to $800 million. In the small print, he will claim he is still within the fiscal parameters that he set in his first budget.

The budget will spray money on every interest group. What the budget will not do is set out a practical, prioritised list of measures needed to reach the goal of being in the top half of the OECD.

ACT has the vision of making New Zealand a first world country again, of having a standard of living so high that our best and brightest will not be attracted overseas. In February this year, the Labour/Alliance government publicly endorsed ACT's goal. The coalition admitted that New Zealand cannot afford first world health and education without a first world economy. Dr Cullen also set the goal of New Zealand having 4 percent growth sustainably.

It is growth per capita that matters. New Zealand could grow at 4 percent GDP and New Zealanders be poorer if the population was growing at 5 percent.

The Reserve Bank, in its commentary on why it increased interest rates this week, agreed with criticisms I have been making. Much of today's growth, and the explosion in Auckland house prices and retail sales, is driven by migration, not by productive growth. It is not sustainable, hence the prediction that floating mortgage interest rates will be 9 percent before Christmas.It also raises doubts about the whole basis of Dr Cullen's election-year spend up. It is a return to spend and bust Labour policies.

Since adopting the goal of 4 percent growth, the government has not produced a practical plan to achieve the objective. I know of no reputable economist who believes that you can achieve innovation by government committee.

The two old parties, every election, tell voters that they have found a way to achieve fast growth. Last election it was to fast-track New Zealand into the knowledge industries. I appeared on platforms where Dr Cullen and Bill English both agreed agriculture was a sunset industry and the revolution was the way to go. ACT alone has opposed this snake oil economics.

If agriculture is a sunset industry, it has been some sunset. People will always want three good meals a day. The idea that the world will suddenly stop trading commodities is also nonsense. There is nothing wrong with trading a commodity provided it is profitable.

Profit is what drives investment, jobs and growth. But both old parties seem to think profit is a dirty word - that's what is wrong with their economic policies. If you can't bring yourself to even utter the word profit, how can a government put together an economic framework to ensure the incentives are there for business to take the investments for growth?

The reason ACT is so influential in Parliament is because we are up front and tell it like it is: "Increasing social spending has not solved the problem of state dependency, it has made it worse. There are few social problems that would not be assisted if we lived in a country that was more prosperous and adults took more personal responsibility.

ACT is setting out today not just our opposition to spend-and-bust, but also our alternative. It is my belief that the reason ACT's nine MPs have been the effective Opposition is because we are prepared to set out fresh, new ideas and positive, practical alternative solutions.

ACT's alternative budget is built on the following facts. First. There is no country in history that has ever grown at 4 percent per capita sustainably, where the government takes 40 percent of everything the nation produces. Either Dr Cullen is the first to discover how, which I think you will agree is unlikely, or it cannot be done. So ACT says we need smaller government.

Second. It's the private sector - and in New Zealand business means small business - that creates jobs and growth. Not the government.

Third. The government cannot change the geographic fact that New Zealand is the last bus stop before Antarctica. What we do have control over are compliance costs and taxation.

Labour has not changed company tax, so it was National that gave us the highest rates of company tax in the Asia Pacific region.

To get growth, government must cut taxes below Australia and have a bonfire of red tape, so our business environment is more friendly than Australia's.

ACT's alternative budget makes no spending promises, except in two areas - both relate to security, the government's first priority.

A nation surrounded by more water than any other, must have an airforce and blue water navy. Last week Australia made security the priority in its budget.

Peter Reith, the former Australian Defence Minister, said to ACT's conference that Australia is in the same region as New Zealand. Australia believes Helen Clark's analysis that our region is benign is false. Australia sees significant risks.

Either our government or the Australians must be wrong. ACT thinks it is New Zealand that's wrong.

ACT also agrees with Peter Reith that the solution is to rejoin ANZUS. We do not accept National's claim that it is possible to rebuild the airforce or upgrade the navy without the assistance of ANZUS membership. September 11 should have told Labour that it is a dangerous world and the best security is collective.

The next issue is personal security. The shocking murders this week in Auckland and last month in Lower Hutt are graphic evidence of the failure of successive governments' law and justice policies.

It is a shocking fact that you are more likely to be a victim of violent crime in New Zealand than in America. Household victims of crime surveys prove that New Zealanders are more likely to be assaulted, raped or be violently robbed than Americans.

ACT says this increasing violence must stop. The government must act. ACT proposes Truth-in-Sentencing, where offenders must serve their full court-imposed sentence. Yes, this will cost more. But prisons cost $369 million last year, whereas crime cost the economy $6 billion. Crime by prisoners on parole cost at least $1 billion.

We need to have the New York approach - Zero Tolerance for Crime - where instead of wiping $80 million of fines, as New Zealand courts did last year, we stamp on street crimes such as graffiti and minor vandalism. We have to send a message to first-level offenders that crime does not pay.

In New York, violent crime has been reduced by 30 percent - including murders - while in New Zealand violent crime has increased by over 30 percent in the same period. Yes, Zero Tolerance for Crime requires more police. New Zealand has the highest rate of violent crime in the English-speaking world and the lowest number of police per head of population. ACT thinks the two are connected.

Providing citizens with security is government's first obligation, and ACT will meet it.

Of course we need to tackle the causes of crime. It's lack of personal responsibility. We need to put back personal responsibility not just into the justice system, but all of society. Nowhere is the need greater than in our welfare system. No one has advocated the need for welfare reform more strongly than Muriel Newman, who I now introduce.


For more information visit ACT online at or contact the ACT Parliamentary Office at

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