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BUDGET 2000 SPEECH - Richard Prebble


The ACT Party will vote against this lolly scramble budget.

Today’s budget is a huge step back to tax, spend and bust. Since their election the Labour/Alliance coalition have been taxing.

 Increasing income tax $365 million.  Increasing cigarette taxes $120 million.

Now comes the spend. Spending is up a total of $16 billion over the next five years. There are at least 42 different programmes and initiatives, including $146 million for the arts, $370 million for income related rentals for some low-income New Zealanders, and $420 million in student loan interest write-offs.

Business missed out with no tax breaks for research and development – another broken promise!

What will come next is the bust.

Michael Cullen claims to be an economic historian. He should know then that high taxing, big spending budgets are followed by a bust. Boom and bust.

If government spending worked then socialism would be the answer. This so-called good news budget is going to bring very bad news. The government can point to some very positive indicators, none of which are the results of anything they have done.

Exports are up.

Grass growth is excellent so rural New Zealand is having a good year.

The Labour/Alliance coalition inherited the best set of government books in a century. There are some economic problems and the budget makes them worse. These problems will become a crisis and will choke off the predicted economic growth.

There are inflationary pressures in the economy – a lower dollar and higher oil prices are pushing up prices and so increasing interest rates. The government spend up on this budget will lead to a state sector led inflationary wage round.

Labour MPs prior to the election went to meetings organised by the health unions and did nothing to dispel the idea that they support a 10% plus wage round in health.

The health vote is over $7 billion.

The young doctors are expecting 20% - some surgeons have already received 30% increases – a 10% wage round in health will cost $500 million – enough to wipe out the total health vote increase.

As a member of the Select Committee hearing evidence on the Employment Relations Bill we heard evidence from union after union that they expect that Bill to result in a substantial pay increase for workers.

This budget, with its increased spending, is the green light for a state sector led inflationary wage round. The wild-cat strike by over 1000 New Zealand Steel workers is an indication of how industrial relations will be under Labour/Alliance.

The workers, mostly Engineers Union members, are demanding a 7.5% pay increase.

They claim they had a nil increase last year - in fact the union and the company negotiated a bonus. These workers who are going on strike are receiving a $2,300 cash bonus this month.

The company has offered a 3% increase - worth an average $2,000 - plus a further 3% in a new productivity agreement. With inflation at less that 2%, not a bad offer.

The union held a stop-work meeting in the Pukekohe town hall at lunch time yesterday and the workers did not return to work.

The previous contract only finished two weeks ago, and the union is out on strike with no notice for at least a week as the next union meeting is scheduled on Tuesday.

This is the so-called business friendly Engineers Union. Where is Andrew Little the union secretary elect, the man who says good companies have nothing to fear? He is on a one month overseas trip.

What is Mike Sweeney, Auckland regional secretary and Labour party activist, doing? Expressing regret.

This coalition claims it is closing the gaps.

What does the government say about a wild-cat strike organised by its biggest affiliate?

A spokesperson for the Minister of Labour Margaret Wilson has said in today’s paper -

"If anything, this strike is a consequence of the take-it-or-leave-it negotiations brought about by the ECA."

What an arrogant, ignorant, anti-business statement.

New Zealand Steel has never presented take-it-or-leave-it deals. The average wage at New Zealand Steel is $67,000. The company has always engaged in good faith bargaining.

It's the union, not the company that is taking a take-it-or-leave-it approach. It’s the union that’s called a wild-cat strike.

What it looks like is an attempt by the Engineers Union to establish a 'ruling rate'. They will then roll it through every small membership in the country.

It will put many small engineering plants under. It may put New Zealand Steel under:  The number two melting plant needs a $30 million upgrade.

Why should BHP put $30 million into a plant which goes out on a wild-cat strike and the Minister of Labour’s spokesperson is reported on the front page of the paper backing the strike and defaming the company.

If this strike lasts a week it will cost the company millions of dollars in lost production.

The budget does not even acknowledge that an inflationary wage round will lead to economy-stalling interest rate increases.

There is a second more serious problem – the growing investment shortfall.

Investment requires confidence – which is in free fall.

I know of no major new private sector investment announced in the last six months that was not committed to prior to the election of this Labour/Alliance coalition.

Economic growth is the result of a mixture of more and better investment and an increased workforce and greater productivity.

ACT has commissioned research on the amount of investment needed to sustain 4% growth in GDP.

If the workforce is static – and with the outflow of kiwis this seems to be so – New Zealand needs a massive $27 billion of investment to grow at 4%.

$10 billion is needed just for depreciation, for wear and tear. And $17 billion of extra capital to finance growth.

A total of $27 billion.

New Zealand has never attracted $27 billion. The highest was nearly $21 billion investment a year before Mr Peters choked off confidence.

New Zealand will not achieve $17 billion investment in the coming year. That’s a $10 billion investment shortfall.

Lack of investment will choke off the economy. As I said, growth comes from investment and people.

This budget does nothing to cure the worse problem – the loss of our most talented and skilled New Zealanders – we are now losing 217 New Zealanders a day.

There are skilled shortages everywhere – from the hospital operating theatres to the factory floor.

Hitting talented New Zealanders with an increase in income tax may raise $365 million – but it costs us our future.

The government’s rosy forecasts are a mirage.

Treasury is forecasting 3.7% growth for this year.

In the lockup – ACT’s Rodney Hide asked the Treasury analysts, “in making this 4% growth forecast, did you make any allowance for the effect on growth of the income tax increase?” Answer – "Treasury belives it will have no impact on growth".

“Did you make any allowance for the effect of the re-nationalisation of ACC?” Answer – "no impact on growth".

“Did you take into account the effect on investment of the Employment Relations Bill?” Answer – "no impact on growth".

“Well, did Treasury take any notice of the biggest ever drop in business confidence?” Answer – "no impact on growth".

Is there any MP silly enough to believe that these factors will have no impact on growth?

This whole budget is based on optimistic growth forecasts that no sensible person believes.

If the economy fails to grow, if the government does not collect the predicted record tax revenues then the surpluses will vanish.

I have been a Treasury Minister when the economy is in a dip.

It is much harder to tighten expenditure than it is to increase it.

The increases in expenditure in this budget are reckless.

The investors – who we need to invest and create jobs – know that this budget is imprudent.

They also know that throwing money at social problems rarely solves them and usually makes them worse.

Since 1980 some $184 billion has been transferred by the social welfare system. That’s enough money to buy the whole of the South Island, not once, but three times.

If money closed income gaps you would think that three times the total wealth of the South Island would have done the trick.

Instead – this policy of successive governments has widened the gaps between rich and poor.

So this Labour/Alliance government says $184 billion was not enough – let’s spend another billion.

Of course it won’t work.

Good intentions are not enough – you have got to be sensible.

We need to look at the incentives in our welfare state. The way out of poverty is work, not depending on state benefits.

The poverty in New Zealand is created largely by:

 Young people leaving school unable to read or do arithmetic – we need standards and Trevor Mallard is removing what few standards we have.

 A cycle of dependency.

This budget, these programmes, do not break any of the poverty traps. So this budget will widen the gaps.

Let me – as a constructive opposition – say how to encourage investment.

Investors, both foreign and domestic, are aware of the importance of four pillars of the economy.

 The Fiscal Responsibility Act to keep government expenditure in check.  The Reserve Bank Act to keep inflation under control.  The Employment Contracts Act to create a flexible labour market and to encourage job creation.  An open economy to gain access to the global capital market.

All four pillars are under attack.

The Employment Relations Bill creates a rigid labour market and trade union monopolies.

The Reserve Bank’s independence is under attack from Mr Anderton.

The open economy is undermined by the Sealords decision.

And this budget’s reckless spending shows that the Fiscal Responsibility Act cannot ensure fiscal responsibility.

The coalition could restore investor confidence –

 Announce that the Employment Relations Bill is to be withdrawn and rewritten.  Cancel the nonsense review of the Reserve Bank Act.  Stop interfering in investment decisions, and finally  Do what Chancellor Schröder of Germany, the Social Democrat did – he fired his left wing Finance Minister Oskar Lafontaine.

Fire Michael Cullen. He will never write a budget that will create jobs, growth, attract kiwis home!

Appoint Phil Goff.

The New Zealand economy is just too fragile to have to endure tax, spend and bust!


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