19 May 2011

Budget 2011: The courage to look at revenue

Dr Russel Norman, Green Party Co-leader

Opening – A three sided debate

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 damaging spending cuts.

It is responsible to raise revenue and short-sighted just to cut, borrow and sell, and we’re the only ones 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 onto a more sustainable footing with lower greenhouse emissions and 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 this budget fails to deliver.

Faced with a budget deficit partly of their own making, this Government has chosen to cut services and increase debt. Faced with an economy staggering under high debt the Government has chosen to take us backwards with its attempt to mine minerals and water.

But there are alternatives.

Avoiding 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 irresponsible.

Bleeding social support and slashing services to pay for previous tax cuts is irresponsible.

And Labour’s response is irresponsible too. Putting the Government’s historic deficit on the nation’s credit card is the wrong thing to do. I say to our colleagues in Labour – if you don’t like the spending cuts then you 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 and borrow and to Labour’s borrow and borrow.

The old tax switcheroo

Mr Speaker we need to address the so-called ‘tax switch’ – 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 – they introduced two rounds of tax cuts that mostly went to the top end; then they increased GST to pay for it, except that it did not; 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 CEO of Westpac is given a $5000 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 “nice to haves,” but massive tax cuts for bank CEO’s 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 New Zealand.

New Zealand already has one of largest gaps between rich and poor in the OECD. This budget will make that gap worse.

The 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 this record deficit.

And the failure of the Government’s tax policy has led to the death by a thousand cuts which the Government has chosen to deliver now.
Let’s be clear who is paying for the Government’s economic mismanagement and poor fiscal choices.
It is the average working family who will bear the overwhelming brunt of the cuts. That is not fair.
Two and a half billion is cut from KiwiSaver and from hard working New Zealanders.
The changes to KiwiSaver announced today will make it less attractive and undermines our national saving efforts.
And the Government knows their changes to KiwiSaver will undermine the scheme. That’s why they are allocating $90 million less in this budget towards start up grants.
Over $400 million will be cut from Working for Families. That is money which helps put food on the table for many Kiwi kids. Those kids will be worse off.
Over $600 million will be cut from ACC, so when Kiwi families get hurt it will be harder for them to get healthy.
We know ACC is already refusing support for many injuries. Starving ACC of revenue through the non-earner account will make life worse for many New Zealanders.
And it is Kiwi families that have to retrain because jobs are hard to come by. That will be harder because of the discriminatory changes 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.
A fairer tax system

Mr Speaker

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 per year.

And to anyone who says the sky would fall in if we taxed capital gains I ask you- has it caused the sky to fall in Australia, or Canada, or the USA or China – all of whom have a capital gains tax? The IMF, 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 tax treatment of housing. A similar case can be made for speculation in rural land that is driving family farmers off the land.

The Government’s inaction on capital gains has slammed the door on the Kiwi dream of owning your own home or your own farm.

A capital gains tax makes sense and is fiscally responsible.

It would fairly increase revenue to lower Government borrowing and it would move capital more towards the productive sector of the economy, more towards business.

And it is the best thing we can do to make housing more affordable and reignite young New Zealanders’ dreams of buying their own home or their own family farm.

There are alternatives to this Budget, implementing a tax on capital gains is a smart and responsible one that also makes family homes and family farms more affordable for the average Kiwi.

Rebuilding Christchurch

Mr Speaker

The devastating earthquakes that struck Christchurch 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.

And while the on-going human costs of the quakes are immeasurable it is our job to meet the quantifiable economic costs to ensure Christchurch and Cantabrians can rebuild.

One-off tragic events like the earthquakes should not be funded through permanent service cuts and permanent debt. That is what the Government is doing.

The Green Party has an alternative way to pay for the cost of rebuilding Christchurch that doesn’t 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 a levy was a fair way to spread the costs, and we should too.

New Zealanders told us they preferred a temporary levy to increased debt or spending cuts when we asked them in our UMR poll.

A temporary levy set at 1.5% on income between $48,000 and $70,000, 3.0% on income above $70,000, and 2% on company tax rate, would raise an additional $1 billion per year.

Over 5 years that levy would raise the amount that it is currently projected the Government will need to pay for the rebuild.

The Government’s approach — spending cuts and additional debt —carry 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 will add $250 million per year in interest payments alone.

A credit downgrade, due to increased Government borrowing, could see the 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.

Economic transformation

Mr Speaker

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 tech 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 that help the Government balance their books at the same time.

Take greenhouse emissions for example; the Government’s Emissions Trading Scheme is so badly designed that we the tax-payers are footing a bill of nearly $2 billion over the next two years to subsidise polluters’ carbon emissions. That is an extra two billion dollars added to the worst deficit in New Zealand 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.

And it will free up over a billion dollars from this deficit and render unnecessary the social service cuts we have heard about today.

But it’s more than fiscal. It’s about protecting our kids from out-of-control climate change.

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 ten cents per cubic meter 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 is a responsible way to sustain our natural capital.

We also need to urgently reprioritise the infrastructure expenditure to reflect the clean green low carbon future we require.

Spending $16 billion over twelve years on new motorways at the same time as petrol hits its highest price ever is not a smart way to run an economy.

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 that are not as job rich as spending on public transport is not a smart way to run an economy.

Let me be clear. We are not anti-roads. The question is; “what is the best way to spend our next transport dollar?”

Sinking such large amounts of money into new motorways that commuters don’t want, and buses don’t drive on, is money badly spent.

Mr. Speaker

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 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’s 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 apply at home and export to the rest of the world.

That can’t happen if our assets are sold as the Government proposed today.
But this budget doesn’t deliver any of that.

National doesn’t have a plan for the environment.

National doesn’t have a plan for business and it doesn’t have a plan for jobs and people.

There are alternatives to this Budget, such as creating an economy that is good for the environment and good for people.

MoU Projects

Mr Speaker, despite not being part of the Government, the Greens are part of creating a more sustainable economy.

Our memorandum of understanding with the National Party has delivered the successful Warm Up New Zealand: Heat Smart home insulation scheme.

It is an example of smart, green economics at work, and we congratulate the government for recognising the wisdom of this policy.

New Zealand will reap the economic benefits in health and energy savings worth over $500 million from the 100,000 homes insulated to date.

In addition, 2,000 jobs will be created over the four years of the programme.

But most importantly, 300,000 New Zealanders — over half of them on low incomes — will be warmer and healthier this winter, thanks to this scheme

This is an example of the sort of Green alternatives that deliver for the economy and for our people and for our environment.

But sadly the green homes scheme is a shining light in a budget that is otherwise lacking in imagination.

Conclusion

Mr Speaker, the Green Party recognises the challenging fiscal circumstances that surround the development of 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, measures that would reduce government debt, avoid damaging spending cuts, and set us on a path of developing a 21st century smart green economy.

We cannot endorse a budget that will widen the gap between those in New Zealand that have the most and those that need the most.

We cannot endorse a budget that undermines our 100% Pure 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.

Ends

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