. Sunday 15th May, 2011

Q+A Minor Parties' Budget Debate

The debate has been transcribed below. All interviews and panel discussions from this morning's Q+A can be watched on tvnz.co.nz at, http://tvnz.co.nz/q-and-a-news

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MINOR PARTIES' BUDGET DEBATE HOSTED BY PAUL HOLMES

PAUL It's Budget week just ahead, and on Thursday, Finance Minister Bill English delivers his third Budget, and there's no good news, really. It's already been called a "zero budget", which is quite depressing, with the minister saying there's precious little money for new spending. So what do the minor parties want to see in the Budget, and what pressure will they be putting on the government? I'm joined by the Greens co-leader, Russel Norman; next to him - well, not politically - is ACT finance spokesman Roger Douglas; Rahui Katene from the Maori Party is with us; and, of course, United Future leader Peter Dunne is over there on the right. I want to ask each of you, first of all, for a 30-second opener - what you believe should be the focus of the Budget. Russel Norman.

RUSSEL NORMAN - Greens

Thanks, Paul. National's fiscal deficit, the biggest in history, has left us with some difficult choices. We can have big spending cuts, but that can induce a new recession, and it will hurt those at the bottom the most; we could increase borrowing, but we could get a credit downgrade, and it just passes the problem on; or we could increase revenue. The Greens think the responsible thing to do is increase revenue through some smart eco taxes which move our economy in a sustainable direction.

PAUL ACT finance spokesman Sir Roger Douglas.

SIR ROGER DOUGLAS - ACT

The first thing is the government needs to stop playing Russian roulette with the NZ economy. We can't continue to spend $1.20 for every dollar of income we get in. We've gotta stop fizzling, we've gotta have comprehensive change. And whether we like it or not, that means sacrifice across the board. We need to protect the most vulnerable 25%, but after that all of us have to make sacrifices. We need to make short- and long-term changes. The short term, get rid of the wasteful and unnecessary expenditure; long term, improve productivity and health, education and welfare.

PAUL Thank you, Sir Roger. Rahui Katene, Maori Party.

RAHUI KATENE - Maori Party

Thank you. The Maori Party is committed to NZ, so we want to see a future that takes care of everybody, that protects the most vulnerable, that takes all of us into the future. So we expect to see a Budget this week that takes care of the most vulnerable while investing in the future, in our mokopuna. Look, it is our youth that are going to be supporting us as we grow older, so we need to be supporting them now so that their education, their success will support us. We need to be looking at investment in the future and protecting the vulnerable.

PAUL United Future's Peter Dunne.

PETER DUNNE - United Future

Thanks, Paul. I've got four points I want to see in the Budget. I'd like to see the Budget move towards a compulsory superannuation scheme called KiwiSaver; I'd like to see the Budget move further ahead on income sharing for parents for dependent children; I'd like to see the Budget start the process of getting rid of 1080 as the major way we kill rodents, possums, by shifting 20 million into pilot programmes for trapping; and I'd finally like to see the Budget bring in a universal health check for every NZer on an annual basis.

PAUL Let me start with you, Peter Dunne. How serious, do you believe, is our financial plight? Sir Roger Douglas, of course, believes it is very bad. What are we talking, a deficit 15, 16, 17 billion, give or take a billion? How badly do you regard our situation?

PETER We've come through a global economic crisis probably unparalleled since the Great Depression, point one. Add to that about 20 billion dollars of damage in Christchurch from earthquakes. We are in a very parlous position. But we don't have the huge debt build-up that's ripping economies like Greece and Spain, etc, and I think we've gotta maintain the balanced approach that we have done over the last few years.

PAUL You see, Sir Roger, you're demanding tough decisions on spending. Of course, you do, you always do. The truth is the electorate won't let them do it. Take the cuts, do the cuts that you're suggesting, there'd be riots in the streets.

SIR ROGER That's not true. In 1984, I was faced with a deficit of the same size - 9% of GDP. We got rid of 7% of that in the first Budget. People voted us back. I just do not believe that the public don't understand our difficulty. What it requires is leadership, and we're not getting leadership.

RUSSEL But the problem, Roger, is that all three of you voted for the tax cuts which have been part of the problem as to why the government's got a huge fiscal deficit. Five billion dollars a year have made the deficit much worse, and all three of you voted for it.

SIR ROGER I'm not- Look, it's not about- No, you see, you want a situation where the government spends $1 in every 2 in the economy. I don't want that.

RUSSEL No, I don't want that at all.

SIR ROGER I want to reduce that. I want to get rid of the wasteful and unnecessary expenditure.

PAUL Can I bring in Rahui Katene? It seems from what you were telling us earlier that you want a kind of Alliance mix of policies, you know, you want the increased taxes, more government spending, the vulnerable looked after, education, health, and so forth. But you're gonna be voting for a National Budget that's probably gonna deliver none of that. How does that work?

RAHUI Well, we do see that there needs to be investment in the future. We do need to tighten our belts, we see that, but the investment in the future mustn't be at the expense of the vulnerable, so we do-

PAUL Well, we've gotta get through this bit, don't we, though?

RAHUI Well, we do, but you cannot- Look, every disaster that you see, you don't just go in and rescue, you also put in place the things for recovery. So while we're doing the belt tightening, we also need to be putting in place investment in the future.

RUSSEL Spending cuts could induce a new recession. That's what happened in '91, Paul, was a big spending cut induced a big recession. A big spending cut in '91 induced the recession, right? So we do need to be careful - if you put in big spending cuts right now you could get a new recession, and it will hurt the most vulnerable.

PAUL Hang on. Peter, yes, go on.

PETER It's all very well to say roll back the tax cuts. But actually, they were about giving middle NZ families a bit of a dividend for all of the changes they've been through, often initiated by what was rolled out in 1991. You can't continue to say one way of balancing the books is to put the brunt on to households.

PAUL Yeah, but given the collapse of the tax take since the tax cuts, were they a mistake, Revenue Minister?

PETER Sorry, I didn't hear the first part of the question.

PAUL Given the collapse of the tax take since the tax cuts, were the tax cuts a mistake?

PETER No, they weren't a mistake at all. And in fact, if you look at - as I said right at the beginning - if you look at the state of the international economy, you look at the state of, uh, the Christchurch events, for instance, Pike River, all of these things that have come on to the balance sheet just in the last nine months, obviously we've gotta deal with them, but that doesn't mean you throw the baby out with the bath water.

PAUL I want to move on to one of the big issues, which has already been flagged by the Prime Minister in quite some detail - KiwiSaver. Do there need to be changes to the KiwiSaver, given that the government is saying our contribution has gotta be a bit less, worker and employer gotta put in more? Rahui.

RAHUI Well, the concerns are if you make changes to it, people are gonna lose confidence in the system and they're going to walk away from it. And we need to be very careful that we're not increasing it so much that the poor people, even the ones in the middle brackets, are not able to afford to get into it. It is very important that we encourage this saving culture, so we do need to be making sure that we don't fiddle around with it, and encourage people to get in.

RUSSEL Actually, Treasury showed that the KiwiSaver has resulted in a 40% increase in savings additional to what people would have saved otherwise. So it is helping our savings culture, and if we don't save, then other people will own our country.

PETER The problem with KiwiSaver, Paul-

PAUL Does it hurt making some adjustments?

RUSSEL Well, the adjustments- Rahui's right, it undermines people's confidence in the system. This is the second change this government's introduced, and so it undermines the system.

SIR ROGER I support a universal savings scheme. In fact, I introduced, or was responsible for introducing one in the 1970s. And if we still had that, we'd have billions of dollars in the bank and people would be retiring on three or four hundred. The question is how should it be designed, and KiwiSaver is not comprehensive enough. And the problem is it's not bulletproof from politicians who want to meddle in it, and we need to go back to the design features.

PETER I'd like to see compulsory KiwiSaver. The problem we've got at the moment is KiwiSaver has, frankly, been far too successful. The estimates of uptake are at least five years ahead in terms of what's actually happened. So there is a fiscal problem to be resolved. I just make the point, though, that people won't actually be flocking away from KiwiSaver, because their savings are locked in until they're 65. And we've still got 20,000 people a month joining the scheme, so I think it will continue to grow, regardless of these adjustments.

RAHUI That's not correct, because I had a constituent come into my office on Friday who's pulling out of the scheme, or trying to pull out of the scheme and is concerned that he's not able to get his own money that he put into it, out of it. So we are already seeing people who are pulling out, not just taking a holiday, but trying to pull out.

PETER But the point is they can't pull out. They can't pull out.

RUSSEL You're undermining private savings, that's the bigger picture. You're undermining private savings at the same time as National is borrowing heavily and engaging in tax cuts and spending cuts.

PAUL Yes, but you want us to do savings, you want capital gains tax except on your house-

RUSSEL That's right. And so if you look at carbon charges, currently it costs the government a billion dollars a year to subsidise greenhouse pollution. I don't think we should subsidise greenhouse pollution. Let's save a billion dollars a year.

PAUL Let me move on. I've got about a minute to go.

PETER ...making sure that KiwiSaver survives and is sustainable and is politician-proof in the future, you've gotta make some changes now.

RUSSEL By meddling it in it you're making it politician-proof? I think you're doing the opposite.

PAUL All right, I think we've made a good point. Interest-free student loans. We had Steven Joyce on the programme saying he's bothered about the bill of the people overseas not paying their student loans off, and of course, there's no incentive to pay your student loan off apart from the bare minimum because you're not paying any interest. Have we gotta knock back the interest-free student loans a little bit?

RUSSEL Uh, I think interest-free student loans is good because it provides incentives for people to study. If we don't have a more educated workforce, increasing productivity, we won't get out of the hole we're in currently.

PAUL The hole is the student-loan debt.

RUSSEL The hole is the fiscal position and falling behind Australia.

SIR ROGER Look, we have to be realistic at some point of time. We simply can't afford it. And what we are doing is we are actually taxing the young people in Otara and Mangere and Porirua to pay for the affluent in other areas - Epsom's and the high-income earning places. It's a transfer of wealth from the poor to the rich.

RAHUI But it is investment in the future, and that's what we need to be doing, investing in the future. We need more people getting better education. We also need, though, for them to be coming back to NZ, and if they're not coming back, they still need to be paying it back-

PETER The bottom line is if you take out a loan, you take on the responsibility of repaying it. Domestic borrowers repay five times more quickly than overseas borrowers. We've got billions of dollars locked up overseas, we've gotta get it back. But in the long term I actually think the answer is something completely different: get rid of student loans, get rid of student allowances. You'd actually, by trading the two off - no fees, no loans other than for living costs - you'd reduce most people's loans dramatically.

PAUL Before we get on to the cost of living, let's talk about Christchurch. The government has signalled, flagged a Skills for Canterbury package, 42 million dollars to develop skills for people who are going to have to be rebuilding Christchurch, of which 200 trainees at least are going to be Maori. Are you pleased about that?

RAHUI Very pleased, very pleased. That's what I'm saying - in the midst of a disaster, you need to be preparing for the future. And so this is great that we're getting these training opportunities for Maori and for others, because we know that we're all really low in those skills.

PAUL A good package, Peter?

PETER Yes, it is. And I think that one of the things that we've gotta invest in is the rebuilding of Christchurch, and Canterbury as a whole. 20 billion dollars of damage, it's got to be rebuilt because it's 15% of our economy.

PAUL Mr Dunne, of course, which probably means that the government is rueing the day it cut 50 million dollars from skills training. Phil Goff is saying apprentice numbers are down 30% on three years ago. You were part of that.

PETER Well, you can look back and say if we knew then what we know now you may do things differently, but the reality is the Christchurch earthquakes have occurred, they've wrought incredible damage, we have to respond. And a whole lot of government processes now are looking at doing things differently, because the situation is so radically different. But I think the bottom line is we've gotta get through, the investment's gotta be made, the jobs have gotta be there, and the rebuild's gotta take place.

PAUL And the training's gotta happen, and that's probably a very good thing for our young people, which we could turn a very bad negative into a positive. You want a one-off levy to pay for the rebuilding of Christchurch.

RUSSEL That's right. I think if you say you wanna spend lots of money, then you've gotta talk about where it's going to come from. I think that's just being straight up with people. And so a targeted earthquake levy, where the money goes directly into Christchurch, about a billion dollars-

PAUL So a one-off payment of about five bucks every-

RUSSEL It would depend on your income, it would go up. Say $23 a week if you're on 100 grand, um, but much lower- and you wouldn't pay anything below 40.

PAUL A week?

RUSSEL $23 a week if you're on 100 grand, nothing if you're below 40.

PAUL Hang on, I thought you were talking about a one-off levy.

RUSSEL It would last for maybe five years, at a billion dollars a year, so that we could repay-

PETER It's called a tax rise. This is actually the Greens reversing last year's tax cuts.

RUSSEL We went out- Well, the GST did that, Peter, thank you very much. So this is talking about how do we actually pay for the rebuild. The Greens are the only ones who are putting themselves forward and saying, "This is how we would pay for the rebuild." We would have a targeted earthquake levy. I'm proud of the fact that we're honest about it. Everyone else says, "Let's just borrow." I don't think we can sit around and borrow and borrow and borrow. We don't want to leave that for our kids. We should talk about how we're gonna raise the money. I think it's only fair.

PAUL Yeah, but you wanna increase taxes, but you also want people to save more. But anyway, let's move on to cost of living. We all will have noticed the cost of living when we go to the supermarket. What the hell do we do about it? How do people afford to eat and to live and...? I heard a case the other day- No, let's go to you, Sir Roger.

SIR ROGER Well, don't look at the individual items of cost increase. Just ask yourself why our productivity is, over the last 15 years, was a third of what it was in the 10 years before. If we're gonna get out of this problem we've gotta become more affluent, we've gotta grow, and we'll only do that by improving our productivity. And we've gotta start with government. 70% of government expenditures in health, um, education and welfare, and our productivity in these areas is appalling. We saw a recent study in health where, over a five-year period, doctors' productivity was down by minus-15%, and nurses' by minus-11.

PAUL Yeah, but I'm talking about building the-

SIR ROGER We can't- Look, the only- You have to have higher incomes. Higher incomes come from one thing and one thing only - higher productivity. We were beating Australia for a greater part of the '90s, and since then we've been a third. And we won't get there-

RUSSEL Yeah, but GDP per capita in Australia versus NZ, from '84 to '99. we fell behind as a result of the New Right policies.

PAUL During your period.

RUSSEL During that period we actually went backwards, compared to Australia, on GDP per capita. So that surely shows that the policy didn't work. I know you believe in it, but it just didn't work in practice.

PAUL Russel, I wanna talk about- Let's talk about that productivity thing, because do you remember, I remember back in '84, you (TO ROGER DOUGLAS) and Lange were saying it, and you (TO PETER DUNNE) were part of that government as well: "We're not going to just put logs on the ships any more and send them overseas, we're going to cut the wood up, we're going to add value to it, make tables and chairs and things like this." I went to Napier port the other day; still full of logs. So where's the productivity?

PETER Well, the reason for that is that while we were making changes, I think we ignored the fact that the rest of the world was making changes as well. So you've got more competitive factories offshore, you've got a number of NZ businesses that actually find it easier to send raw product offshore, have it processed there, then return it to the NZ market for sale, which really draws us back-

PAUL But we don't want it to come back to the NZ market for sale.

SIR ROGER I'll give you an example of productivity-

PETER In some cases, it does.

SIR ROGER You raise ports. It used to cost us $12 to $15 to get logs across, a specified quantity of logs across our port. It went down to $3 or $4 because of the changes we made. That's what productivity is about. We had them at $3 or $4, and in Melbourne they cost, at that time, $25. That gave us a competitive edge.

PAUL But let us talk- If we can just go back, let's talk the language of the people. Milk is $2 a litre now. My producer up there has got a young boy, buys 3 litres of milk, I think it's $5.29. $12 for a kilogram block of cheese. The price of petrol, $2 petrol. God!

RUSSEL So why are we throwing money at motorways?

RAHUI It's crazy. You know, petrol - we need to be looking not just at higher incomes, but we need to be looking at our lives as a whole, we need to be looking at a genuine progress index. Now, everybody's absolutely ignoring the fact that our lives are not just about money. We need to be looking at-

PAUL They are when you're trying to buy a litre of milk.

RAHUI We are going to be looking at different measures, not just at income, but at different measures, so that we're looking at the whole of life and so-

SIR ROGER What's the government going to tell them?

RUSSEL She does have a point.

PAUL Of course you have a point. But how does this help us with a $2 litre of milk and a $2 petrol?

RAHUI Well, we've gotta be investing in the future in different ways, and so instead of looking at the price of petrol going up, we need to be looking at alternative sources, OK?

PAUL Let me bring Peter Dunne in. What do you believe is the secret to productivity?

PETER Well, I think the secret to productivity is making sure we're producing products efficiently that the market wants to buy, and I think the secret to achieving that, part of the secret, is minimising the cost structure of those businesses. So one thing you wanna do, or you don't wanna do for the family at the moment that's looking at their weekly shopping bill is increase their taxes. Cos that actually takes more money out of their pockets and makes their situation even worse.

RUSSEL Which you did with GST. GST increased taxes on what things cost.

PETER Actually, most people ended up far better off after the GST-

RUSSEL Most people are worse off. Talk to them, Peter, they're worse off.

PETER The reality is look at the figures, Russel, not just believe in your prejudices.

RUSSEL They're worse off, Peter. Have you talked to ordinary people?

PETER The fact is your levy on earthquake recovery plus your capital gains tax plus your tax rises-

RUSSEL So you wanna borrow.

PETER ...will actually make it harder for the ordinary people you profess a concern for to do their shopping each week.

RUSSEL OK, let's talk about petrol prices.

PETER Let's get absolutely clear here-

RUSSEL Let's talk about petrol prices, Peter. What are you gonna do about petrol prices?

PETER If you wanna go down Russel's path, just realise that your cost of living will go up dramatically.

RUSSEL OK, let's talk about petrol prices, right? Petrol prices have increased significantly; they're gonna go up further. This is just the real world. What does the government do? It throws 10 billion dollars at new motorway projects instead of investing in public transport, walking and cycling, and moving freight off roads and on to rail and shipping, which is much more efficient. So we've gone down the wrong direction. You cannot build your way out of this issue, we cannot make us more and more dependent on oil. It will actually lock us in to a low-productivity economy. We actually need to reduce our dependency on oil.

RAHUI That's right.

PETER People need to get to the shops to do their shopping, and they need to be able to pay the prices. Now, you say you're gonna bike there? You're gonna walk there? How's a mum with her kids gonna get all the shopping home if they can't get in the car and drive? Come on.

PAUL Final thing, final thing. Dr Brash made a point this week. Hang on a minute, final point. Dr Brash made a point this week - gutless government, hasn't it been, Peter? Brash says this week, "All National does is what the Labour Party want, what the Green Party want and what the Maori Party want."

PETER I think it's been a very prudent government, because actually when you look at what we've done over the last three years, it's been a very moderate and stable path. We haven't had lurches to the extremes. And it's in the hands of the NZ voters come November to make sure we don't get lurches to the extremes.

SIR ROGER This is a government that has gambled with our future. They have gambled on growth and it hasn't come off. You cannot, you cannot have a deficit of 16 to 17 billion dollars. You cannot borrow $80 a week for every man, woman and child in this country and go on for any length of time.

RUSSEL For once, I agree with Roger. You cannot borrow your way to prosperity. We need to face up to the reality of the giant fiscal deficit.

PAUL On that warm note of agreement, we have to finish it, and I thank you very much.
ends

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