After The Earthquake – A Vision For New Zealand

Hon John Boscawen speech to the Penrose Rotary Club; Ellerslie Events Centre, Ellerslie Race Course, Ascot Avenue, Remuera, Auckland; Tuesday, March 1 2011

Good morning, ladies and gentlemen.

Thank you for your invitation to speak today and thank you, Angus [Fletcher], for your introduction. I also wish to acknowledge my Parliamentary colleague, good friend and member of your club Sam Lotu-Iiga.

As Angus said, I am the Minister for Consumer Affairs and the Associate Minister of Commerce. However, under the Confidence & Supply Agreement negotiated between ACT and National immediately after the last election, ACT Leader Rodney Hide – the Minister of Local Government – and I are free to comment critically on Government policy that falls outside of our immediate portfolios. It is only when we speak as Ministers on behalf of the Government that we are required to articulate and support Government policy. Today I speak clearly as the Deputy Leader of the ACT Party.

When I was first invited by Angus to speak at the end of January, my mind immediately turned to the Marine and Coastal Area (Takutai Moana) Bill currently before the House. This Bill repeals the Foreshore and Seabed Act and puts in place a regime for the granting of Customary Title over the foreshore and seabed – now renamed the common marine and coastal area. Those granted Customary Title by negotiation, or awarded it by the courts, will achieve rights akin to freehold title and potentially better – including an absolute right of veto on any resource management consent application over a Customary Title area.

ACT believes that this Bill will have huge constitutional significance, and that very few New Zealanders understand its far reaching significance. This will only become apparent once the Bill is passed in the same way that Aucklanders – and, indeed, all New Zealanders – only woke up to the significance of the Maori Statutory Board and its ability to appoint non-elected voting members to Auckland Council committees recently, despite the fact this was initially reported on by the ‘New Zealand Herald’ over a year ago in December 2009.

Over the past four months, my colleague Hilary Calvert and I have led ACT’s opposition to this Bill. However, I have decided to use this opportunity to talk about wider issues.

The past week is one that will remain in our national consciousness for generations to come. The Christchurch Earthquake will forever be a part of New Zealand history. Christchurch has changed. New Zealand will change – potentially forever.

But out of misery and destruction comes opportunity; an opportunity to rebuild, not just a city but, a country. It remains to be seen whether New Zealanders are prepared to take the bold and courageous steps that are needed to rebuild this country; a country that started to break many years before the earthquake. To see this, one only has to realise that at the turn of the last century New Zealand was regarded as having the highest standard of living in the world. By the 1950s we had dropped to fourth. Today we are ranked about 25th of the 30-odd countries making up the OECD. New Zealand has indeed suffered a massive drop in its prosperity and its standard of living by comparison.

Had I been speaking to you this time last week, I would have told you that the economy is the key issue facing New Zealand today. I would have told you that the New Zealand Government is borrowing around $300 million a week – over $1 billion a month – and that this simply can’t continue.

Sooner or later, the countries lending to us will demand a higher rate of return to reflect the higher risk – or, worse still, will stop lending to us and demand repayment.

Notwithstanding the Government’s moves to restrict the growth in expenditure, it is still spending over $1 billion a month more than what it takes in taxes.

Few people appreciate that, in the year prior to 2005 – before Labour went on an election-winning spending spree on extensions to the interest-free student loan scheme and Working for Families, and other projects of dubious merit – government expenditure was 29 percent of GDP. Today it is 36 percent of GDP. If New Zealand could just simply reduce government expenditure back to where it was in 2005, at 29 percent, we could have an economy boosting flat tax regime of no more than 20 cents in the dollar. One only has to look at the booming Asian economies – such as Hong Kong and Singapore – to see the advantages of getting the incentives right and encouraging people to work and to save.

I would have also told you that we have a social welfare system currently supporting over 360,000 beneficiaries and their families on benefits – such as the Domestic Purposes Benefit, Sickness Benefit, and Unemployment Benefit. This excludes those on National Superannuation. ACT believes we can no longer afford a system that has entrenched an attitude of entitlement and intergenerational welfare; welfare that traps people, robbing them of their self-esteem, and disincentivises them against returning to work through high effective marginal tax rates and abatement rates.

I would have also told you that over the past 20 years we have seen a mass exodus of our citizens to Australia, where the opportunities and incomes are greater. Today, incomes in Australia are some 35 percent higher than in New Zealand.

At the last election ACT campaigned on ‘bringing our children home’ and laid out in our comprehensive 20-Point Plan policies to eliminate this income differential by 2020.

National also campaigned to reduce this income differential, and ACT was successful in getting National to agree to setting up a special task force to consider and recommend sound economic policies to achieve this. National’s aspirations were not as great as ours, so we compromised on a concrete date of 2025, and the 2025 Taskforce under the Chairmanship of the former Reserve Bank Governor and National Party Leader Don Brash was established. Sadly, a lot of what this group has recommended has been dismissed.

I would have also told you that we have an Emissions Trading Scheme (ETS) that effectively operates as a massive tax on electricity and fuel and raises around $500 million per annum which the Government is effectively giving to foresters.

ACT strongly opposed this scheme and I addressed over 45 public meetings throughout New Zealand – from Dargaville and Whangarei in the north, to Gore and Invercargill in the South. From those public meetings the most common question asked was: “where does the money go?” Because most simply didn’t know and were horrified when I told them.

You may be aware that Europe as a whole has an Emissions Trading Scheme. But you may not be aware that the scope of that scheme is much narrower and less comprehensive than New Zealand’s – even before we include agriculture, which is due to come into the ETS in 2015.

You may also have thought that New Zealand must be seen to be ‘doing its bit’ to protect our clean green image. What you may not have known is that our four largest trading partners – Australia, China, the US and Japan – don’t currently have an ETS and that, rather than being a fast follower as the Government promised when in Opposition, we are leading our major trading partners. I acknowledge, however, that Australia last week announced plans – albeit vague – to price carbon.

The Government is essentially taxing you and me an extra $500 million a year to give away as free forests.

You may be aware that foresters earn carbon credits, and that they have to surrender these credits when their trees are felled. But you may not be aware that not all credits are surrendered immediately when the trees are felled – and for a pine forest the scientists have calculated that for every hectare of trees, 300 of the 800 tonnes of carbon sequestered is released in the 10 years after the trees are felled as the roots rot and the twigs and branches on the forest floor decay.

But a forester who immediately replants his forest is able to offset the deferred repayment of credits against the gains from the new forest. This essentially means a forester gets a one off gain of around 230 tonnes of carbon or on current market valuation a one off subsidy of around $4500 per hectare. This is more than enough to meet planting costs of $2000 per hectare for a pine forest and the cost of hill country land. So while some people celebrate the fact that we lead the world with an ETS, few appreciate that the government is essentially giving away free forests to any smart business person who understands how the scheme works.

And the National Party response to this – they are proud of the fact that under Labour electricity would have gone up by 10percent rather than 5percent and that petrol would have gone up by 7 c per litre rather than 3.5 c per litre. In doing so, they have done nothing about the massive subsidies going to foresters.

I would also have told you that we have the most generous interest-free student loan scheme in the world, one which incentivises every student to borrow the most they can – irrespective of their circumstances. And then allows the value of this debt to erode in real terms over the many years it is paid back, if it is paid back at all. And we are prepared to allow this to continue, year after year, despite the fact that our foreign creditors are funding it.

My colleague Sir Roger Douglas is fond of telling the caucus you have to get the incentives right. If you incentivise people to borrow interest free and then repay those debts many years later in devalued dollars, don’t be surprised if that is what they do!

Over the last six years outstanding student debt has risen from $5 billion to $11 billion. The time has come to stop tinkering around the edges as the Minister for Tertiary Education has been doing.

I would also have told you, that following the previous Labour government’s move to abolish youth rates and require employers to offer 16 and 17 year olds the adult minimum wage of $12.75 per hour, soon to be $13 from 1 April, rather than their economic worth, youth unemployment has exploded. The Canterbury University economist Eric Crampton has calculated that there are approximately 12,000 more young people unemployed than there would have been had New Zealand retained youth rates.

In opposition the National Party strongly opposed this because they could see what has actually happened. Employers faced with paying an inexperienced younger worker or the same wage to someone older and more mature have simply chosen the latter. The youth then, have been left to languish on the scrap heap. Parliament has legislated to prevent them from getting employment at $8, $10 an hour and has decreed they should be paid the unemployment benefit of $5 an hour instead. What might surprise you however is that the Minister of Employment, Kate Wilkinson, who so strongly opposed this in opposition voted with all her national colleagues against Sir Roger Douglas’s Private members Bill to reinstate youth rates and to give young 16 and 17 year olds an opportunity to reach the first rung on the employment ladder.

I would also have told you about the opportunity and indeed, the desperate need to better exploit our natural resources. While we are not as well-endowed as Australia in this regard there is much we can develop to increase our prosperity and raise our living standards.

During my time on the Commerce Select Committee I was privileged to hear from Dr Don Elder, CEO of the government owned Solid Energy. On the first occasion Dr Elder explained that New Zealand has literally billions and billions of dollars of high quality lignite in Southland – basically water-logged coal. Not only that, rather than sitting in a national park, these resources are lying under dairy farms in Southland and better still these dairy farms are owned by you and I the taxpayer. I was dumbfounded and completely unaware of this very valuable undeveloped resource.

Dr Elder also explained that this lignite is of a very high quality and has some 15 units of energy per tonne, compared with 5 units of energy for low quality lignite and 24 units for good quality export grade thermal coal.

Since that first meeting Solid Energy has continued to work on commercialising these resources. Three trials are currently underway to make synthetic diesel, urea and briquettes.

You might be surprised however, that late last year the Commissioner for the Environment released a report and recommended that these resources not be developed on the grounds of the carbon emissions that purportedly would be released. The Green Party has a similar view.

Solid Energy refutes these claims but regardless, we would be naïve to think that China won’t source the coal it needs for its thermal power stations from other countries. To my mind, we are not only stupid to think that we shouldn’t develop these resources, we have no choice.
We also have massive reserves of iron sands. Some of these, off the western coast of the North Island are currently being prospected by Fortescue Minerals of Australia. I am advised that the last Labour government accepted a royalty of the higher of just one percent of revenue, or five percent of the profit. We need to become far more commercially savvy in negotiating such agreements.

And, sadly, I would have also told you about a National-led Government that – in the eyes of the ACT Party and an increasing number of National supporters – is moving far too slowly in addressing the key economic issues that are facing our country.

Ladies and Gentlemen, that is what I would have said to you last week.

However, the problems facing New Zealand, and not just Christchurch, have just become a whole lot more serious, and the need for solutions far more pressing. We can no longer afford to continue to tinker around the edges.

Firstly over 200 lives have tragically been lost and the hopes and dreams of the whole city shattered. Cantabrians have lost loved ones, their homes, their jobs and their businesses. It is impossible to put a financial cost on this human loss and suffering.

Secondly there is a real cost in rebuilding the city. We face a very, very serious situation in Christchurch. Destruction in our second largest city is on a scale that few can simply comprehend – whole blocks of the CBD has been destroyed or will need to be demolished because they simply cannot be made safe.

Reconstruction will cost billions of dollars - funded in part from insurance companies, both domestic and international; secondly from central and local government; and thirdly private sources.

In the last week alone we have seen tens of thousands of Cantabrians leave Christchurch. While many of these people will be leaving only temporarily some will never return.

People who have lost jobs and businesses will need to search out other ways to support their families. While government will rightly come to the aid of the unemployed for many this will be but a fraction of what they earned before the earthquake.

We need to face the fact we are likely to have an even greater number take their skills to Australia and further a field and are likely to be a permanent loss to New Zealand.

The Government needs to come up with innovative ways to keep these people here and to attract other New Zealanders who are currently overseas to return.

Far from increasing taxes as some have proposed to pay for this tragedy now is the time to take a good hard look at government expenditure and cut taxes to ensure there is an even greater incentive for New Zealanders to stay in this country and others to return. The fact is that this is an opportunity that we cannot afford to miss.

In 1984, ACT founder Sir Roger Douglas – then Labour Minister of Finance – was confronted with a closed, over-regulated and protective economy. An economy that subsidised farmers to raise sheep on marginal land that no one wanted and then paid for that with prohibitive marginal tax rates. New Zealanders were taxed at 66 cents in the dollar – which sapped the incentive to work. Looking around the room this morning I can see many who will remember losing $2 in every $3 of their marginal income.

In the face of an economy dominated by the so-called ‘Think Big’ projects, Sir Roger Douglas – backed by the likes of Richard Prebble, David Caygill, Mike Moore and others – set out clearly the problems we confronted and articulated what they believed to be the solutions and then showed immense political courage in implementing them. In doing so they saved New Zealand – from the sort of fate we see now in countries like Spain, Portugal, Ireland – and laid the foundation for strong recovery in New Zealand through the 1990s.

Sadly, however, he was interrupted. Following the now infamous ‘cup of tea’, Sir Roger’s reform programme was brought to a grinding halt – only briefly being resurrected years later under the stewardship of former Finance Minister Ruth Richardson.

Sir Roger’s reforms changed our lives. And, this week, so too did the Christchurch Earthquake. New Zealand will struggle to grapple in the aftermath of this national tragedy and our lives have changed in ways that we cannot yet even begin to comprehend.

Now is the time for John Key and the National Party to show the same political courage ACT’s co - founder displayed over 20 years ago.
Now is the time to explain to New Zealanders why we have no alternative but to reform our economy and to first save and then transform this country.

John Key has previously gone on record as saying he didn’t want to take the “big bang” approach in the same way that Sir Roger Douglas did in the 1980s. Instead he preferred a slower, more incremental approach. Obviously with National polling so well, many people agree with him.

However ACT believes the time for that has come and gone.

If we were borrowing $300 million a week before the earthquake, one can only guess what we will be borrowing after it, clearly income tax revenues from Canterbury businesses and indeed the whole country will fall and social welfare payments will necessarily rise.

The time to act is now.

Thank you for the opportunity to speak to you today.

ENDS

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