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Where’s the economic plan, Bill?

Hon David Cunliffe
Finance Spokesperson

17 December 2008 Media Statement

Where’s the economic plan, Bill?


Finance Minister Bill English needs to tell New Zealanders what its strategy is to promote growth and productivity and respond to the global economic downturn, says Labour finance spokesperson David Cunliffe.

“The reality is that Labour bequeathed National not only a far healthier economic position than National left Labour in 1999, but better than that in many comparable OECD countries.

“Labour produced a policy response to the global economic downturn during the election campaign, based around infrastructure development, innovation, savings, skills and sustainability (see attached document). Labour would have released a full mini-Budget before Christmas,” David Cunliffe said.

“We’re getting nothing like this from National. This is a time for serious leadership, but all we are hearing from Mr English is negativity about the fiscal situation, and you can be sure you will hear more of the same from him when Treasury publishes the Government’s Budget Policy Statement tomorrow.

”National may see it as in its interests to promote negativity on the fiscal picture, but to do so would drive economic confidence down still further, and would be an irresponsible action in the current climate,” David Cunliffe said.

“Certainly nothing National has done in parliamentary urgency with its legislative programme in the past two weeks could be called an economic strategy. The best it has offered so far is another round of consumption-oriented tax cuts in April, with no contribution to productivity growth.”

David Cunliffe said Labour had provided nine years of prudent fiscal management, resulting in dramatic drops in unemployment, increasing GDP, and greatly reduced debt (see questions and answers attached).

“When Labour produced its Budget in 2008, the magnitude of the global economic downturn was not known, but when that became apparent Labour outlined a comprehensive strategy to help New Zealand avoid the worst impacts of that crisis. All National is doing is wallowing in its own negativity for political ends.”

ENDS

Policy_Response_to_Downturn.pdf
Net_and_gross_Debt_19912008_1.xls

QUESTIONS AND ANSWERS

What does National’s $7 billion economic stimulus package consist of?

The National-led government has said its economic stimulus package will inject $7 billion into the economy over the next two years. Mr English told Parliament yesterday that this includes their 1 October 2008 tax cuts and the 1 April tax cuts ($4.5 billion).

This implies little expenditure on infrastructure, and means that their plan for the economy consists almost solely of tax cuts, redistributing $730 million from lower to upper income earners.

What was Labour’s plan?

Labour had, in fact, already made a start on an economic stimulus plan with its business tax cuts, R&D tax credits and personal tax cuts, worth $7.9 billion in Budget 2008.

The plan we announced prior to the election (attached) included infrastructure investment, re-training and up-skilling our workforce, sustainability initiatives, changes to provisional tax to ease the pressure on businesses, assisting with savings and encouraging innovation.

Even Labour’s pre-election preview of its economic plan is more substantial than the post-election plan that National has so far come up with.

What kind of economic situation did the National government inherit?

Labour prudently managed the economy across the business cycle, reducing debt and resisting National’s calls for tax cuts during inflationary times.

The New Zealand economy has come a long way since 1999:
• the 1999 Pre-EFU forecast an unemployment rate of 7.0% in the March 2000 quarter compared with this a Budget 2008 forecast of 3.5% and Pre-EFU 2008 forecast of 4.4% unemployment in the March 2009 quarter;
• real gross domestic product (GDP) growth averaged 2.9% from 1990 to 1999 compared with 3.5% from 1999 to 2007;
• in 1999 net core Crown debt sat at 21.8% of GDP but this moved into a positive net financial asset position (including NZ Super Fund assets) since 2006, and;
• in 1999, gross sovereign-issued debt was above 35% of GDP but was halved to 17.6% by Budget 2008, and 17.4% in Pre-EFU 2008.

And we achieved all this while enhancing social equality and while delivering significant gains for New Zealanders including:
• the longest period of economic expansion since WWII
• strong investment in New Zealand’s infrastructure after the 1990s decade of neglect
• restoring and lifting entitlements in superannuation
• tax relief for businesses, savers and families with children, and
personal tax cuts for all workers
• lower primary health care costs

Why is New Zealand currently in a better economic position than most other countries?

New Zealand is well positioned to deal with this economic downturn thanks to a decade of responsible fiscal management by the Labour-led government. As Treasury Secretary, John Whitehead, said in a speech about the global economic crisis on Monday: “We are in the fortunate position of having run budget surpluses for a number of years, which meant we entered the crisis with one of the lowest levels of public debt of any OECD country.” [John Whitehead: “Global Economic and Financial Crisis: Origins, Responses and Ongoing Challenges for New Zealand”, 15 December 2008 (http://www.treasury.govt.nz/publications/media-speeches/speeches/globalcrisis)]

Under Labour New Zealand has far out performed the United States and Europe on management of debt, leaving New Zealand better able to fund much needed productivity investment during the international downturn.

General government net financial liabilities
Per cent of nominal GDP
1999 2008
Australia 14.9 -7.5
New Zealand 25.8 -15.5
United Kingdom 38.7 32.6
United States 40.6 46.2
Euro area 50.2 42.7

Total OECD 41.3 41.7
Source: OECD, detailed table also attached

What improvement will National’s tax cuts make to productivity levels?

Absolutely none. In fact, by reducing measures to support savings and investment in research and development to pay for their tax cuts, National’s plan is more likely to reduce our productivity growth. Very few people actually experience decreased effective marginal tax rates (EMTRs) from National’s tax package, and those that do only by a small amount, while many others experience increased EMTRs. So any claim that this would improve work incentives is nonsense.

What is National’s economic record so far?

• Increased taxes on Research and Development
• Cut Kiwisaver, which will result in lower rates of saving and Increased taxes for businesses with workers in KiwiSaver through the removal of the employers tax credit
• Increased taxes for families and those on lower incomes
• Attacked workers employment security with the 90 day ‘fire at will’ bill
• Attacked New Zealand’s Biofuels industry, resulting in loss of investment for businesses and a missed opportunity for job creation
• Over $100 million loss of inward investment in forestry and substantial losses in the carbon-market service industry that was starting to flourish, thanks to National’s indecision on the Emissions Trading Scheme.
• Damaged New Zealand’s tourism industry and our international reputation through its backward attitude to climate change

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