Grant Robertson has just delivered his pre-budget speech. One takeaway message: “Labour’s finance spokesman Grant Robertson says Labour will set out a tax package before the 2017 election to set out how it will raise revenue to address issues in education, health and housing”.
Today I want to talk about success. As we know success can come in many different forms, from the fact you all made it here at such an early hour on a Monday, for which I am very grateful, to the success of getting a business up and running and making it through each week having paid the staff, the bills and actually got home for dinner a couple of nights.
Success of course may not always be as it appears. Winning a 10-week reality TV show may not actually be the route to true love. The Hurricanes beating the bottom team in the Super Rugby competition in an error-ridden, scratchy display does not bode well for the play-offs. And an economy that manages three percent growth may not be the success we think it is when it has not grown at all in per person terms.
You will be pleased to know that I will be focusing on the latter of these issues today, though I am happy to share my views on the Hurricanes in questions, but somewhat less keen to discuss the Bachelor.
I think it is the job of any person who wants to be Finance Minister to be able to say what economic success would look like, and what the path to get there looks like. That is what I will endeavour to do this morning.
I can see what appear to be signs of success in our economy. GDP growth has bounced along at around 2-3 per cent. Inflation and interest rates are low and those who bought a home some time ago are feeling relatively well-off. Some people and sectors are doing well – in particular tourism. Although that is bringing with it a real awareness of the huge pressure on infrastructure, accommodation and the environment, overall we are a relatively stable, wealthy, peaceful nation.
But underlying these apparent successes are some serious concerns and questions. Shamubeel Eaqub notes that while economic growth has recovered from the recession, the pace has been slower than in past recoveries. The recovery has also been uneven across regions, industries and occupations and inconsistent over time. GDP growth is zero on a per person basis. As Westpac economist Michael Gordon described it, the economy is sluggish. While jobs are being created, unemployment is rising, sitting at 5.7 per cent representing 144,000 New Zealanders out of work. Is that really success? For me it is not.
The biggest questions I think we need to ask are: what and who is the economy for?
The news last week that our top 50 CEOs have had a 12 per cent average pay increase in the last year might indicate some businesses doing well. But when the Household Labour Force Survey shows that nearly half workers got no pay rise at all last year, and for those who did they averaged 1.6 per cent, it is little wonder that many people feel that if prosperity is happening it must be happening to someone else.
The statistics bear this out. Under the last Labour government, the share of growth of our economy going to wage and salary earners was over 50 per cent. Today, it’s fallen to 37 per cent. The slice of the economy going to workers has fallen each year under National – last year, that fall was worth more than $3.8 billion. Since 2009, each New Zealand household has missed out on $13,428 of its share of prosperity.
This growing inequality in our society does none of us any good. Not only does it deny opportunity to many and runs counter to a sense of a fair share and a fair go, it limits our wealth and prosperity. The OECD and IMF have joined the chorus of those who see the economic damage done when large numbers of people do not reach their potential.
So, a small number of people have done well, but too many are not succeeding. Can we really say we are successful when we know thousands of New Zealanders are living in garages or cars, or in overcrowded, cold, damp houses that are making them sick? Or where there are 87,200 young people aged between 15 and 24 who are not in employment, education or training? Or where thousands of New Zealanders live in pain because they have been bounced around a health system that is woefully underfunded?
To give it another rugby analogy, if Dan Carter had won player of the tournament at the 2015 Rugby World Cup, but the All Blacks had lost we would not have hailed the tournament a success. The same applies to our economy – we need to do better to give all New Zealanders a stake and a share in our prosperity.
So what would a successful economy look like? We first need to agree on some measures of success. In the Budget this week I expect that there will be a small surplus posted. When the Budget was read out last year there was a relatively small deficit which, like some kind of fiscal mirage, transformed into a small surplus a few months later. A surplus was National’s self-declared marker of financial competence, but I actually agree with Bill English that when we are arguing at the margins, it is somewhat irrelevant.
Long term the economy should be able to generate solid operating surpluses on a consistent basis, and certainly that should be our goal. But there will be times when it is not reached, when the need is greater to give people some hope and opportunity and make the long term investments in our future well-being. The same applies to reducing debt. We are fortunate, in part due to the excellent work of Dr Michael Cullen, that we survived the Global Financial Crisis with relatively low levels of government debt. The failure of the Government to put much of a dent into that debt is concerning, even bearing in mind the Canterbury earthquakes.
But in any given year we need to make decisions based on the needs of the country. There is no point crowing about a fiscal surplus if the economy is stuttering. I have not been alone in voicing consistent concern over the last year that the economy needs a boost from targeted infrastructure spending. The Reserve Bank Governor has repeatedly noted that accommodative monetary policy needs fiscal policy friends when the economy is stuttering along, under pressure from population growth, collapsing dairy prices and uncertainty in our largest markets.
It is actually hard to say what the Government has planned here. The confusing signals coming from Bill English and John Key appear to show a desire to cut taxes, reduce debt and spend more. I am not sure who is winning in the game of thrones in the Cabinet Room, but this is not the time to play money-go-round. It is the time to invest.
There is a cruel irony that Bill English confirmed in Parliament last week that his “re-prioritising within the wider Crown balance sheet” included selling off state houses. That is the exact opposite of what is needed – and what the Reserve Bank has called for. The building of affordable housing, along with developments in infrastructure should be a priority in this week’s Budget. Now is the time to invest in spending that will provide much needed stimulus to the economy, and help create the infrastructure for a successful and diversified New Zealand economy.
Fiscal discipline also remains an important ingredient of success. I may not have the clerical collar of my Associate Finance Spokesperson David Clark, but my Presbyterian roots demand nothing less of me. We will be undertaking a line-by-line review of the Budget after next week, and I have asked all spokespeople to analyse hard whether that spending passes the test of providing value for money and generating the maximum benefit for taxpayers and citizens.
But the markers of success for the economy that I think we should be focused on at Budget time go beyond traditional fiscal indicators to something more real.
We need to know if we are in social surplus or deficit as much as whether we are in a fiscal one.
I want us to move beyond the simple measurement of GDP growth as a proxy for success. That is an interesting and long term indicator of activity, but it is not sufficient, nor always appropriate. The single biggest boost to GDP in the last five years has been the re-build of Canterbury following the earthquake. It certainly has its limits as a measure of success.
In government we will task a group drawn from government and non-government sectors to finalise a set of indicators in line with our broad goals and make them a clear target to be reported on each year at Budget time.
I believe our success should be judged in core areas, including
increasing the rate of home ownership
zero tolerance for child poverty
world class education and health services
meeting our climate change obligations
To me these are the indicators of a successful society that not only has an economy that is delivering to its citizens but a focus on what is the right and fair thing to do.
In addition, a measure of success should be the extent to which a Budget and an economy meet a core test: is everyone doing and paying their fair share?
The test of our tax system is that it is fair, simple and collected. We will re-establish a Tax Working Group immediately on being elected and give it the mandate to develop proposals to create a system that corrects the imbalances that exist between the productive and speculative parts of our economy. That group needs to look at the issue of tax avoidance and evasion as well, particularly by multinational companies, including consideration of the so-called Google Tax or diverted profits tax.
While we want a comprehensive review there will be some interim steps that we will announce before the election in this regard to ensure that we have the revenue to address pressing issues, particularly in health, education and housing. We must also focus clearly on how we will meet our climate change obligations. The establishment of an Independent Climate Commission charged with developing the details of carbon budgeting will be essential in this regard.
The on-again, off again relationship between the Government and tax cuts has been a little like the aftermath of the Bachelor. Bill English broke up with them in his pre-Budget speech on a Thursday, and by Monday morning John Key got back together with them, only to announce later that day that his relationship status with tax cuts had changed to “it’s complicated”. He was keeping his options open – tax cuts now, tax cuts later or no tax cuts.
Let me be clear, we are not as a country in a position to be offering tax cuts when there are families living in cars and garages. I actually think Bill English gets that. He might want to tell his boss that it will take more than one year to solve the problems in health, education and housing. And while he is at it ask John Key where he thinks he will find the $3 billion for what he describes as meaningful tax cuts.
I have a specific challenge to John Key and Bill English when it comes to tax cuts. If you really believe they are the right thing to do for New Zealand, cost them properly and put them into Budget 2017, rather than dangling them about in an election campaign as a promise from Neverland. As Westpac economist Dominick Stephens says, if tax cuts are on the table they actually make the Government’s published accounts obsolete and irrelevant.
Specifically turning to this week’s Budget, there are four core areas I would focus on to deal with the immediate issues we are facing and begin to create a new economy to match the aspirations of a new generation.
Firstly the Government should be rolling out a comprehensive housing package. Solving our housing crisis requires intervention on multiple fronts. To increase the rate of home ownership, we must build more affordable homes. In his own pre-Budget speech Bill English noted that only five percent of the homes built in the last ten years are affordable homes. This requires intervention, and only the government can lead that. Labour’s KiwiBuild remains the only clear option on the table for a large scale affordable building programme.
Beyond that we would be implementing initiatives to shut down the speculators and land bankers that are pushing housing out of the reach of many Kiwis.
We would also be pushing an ambitious social housing development programme. I am a firm believer in a housing first approach. It is only through secure and safe housing being available for all New Zealanders that we will address other issues including physical and mental health. Housing first is also the route to developing strong communities where people have the confidence to put down roots and become part of their neighbourhoods, schools and other organisations.
The second priority should be a health budget that meets the costs of increased and ageing population. We are hearing stories every day of New Zealanders in pain not receiving the healthcare they need. New Zealand seems to be developing a postcode health system that has different rules depending on where you live. It is heart-breaking to read about Eric Hooks who at 67 cannot play with his grandkids because of hip pain or Jenny Abercrombie at 52 who has been told she will need to wait at least five years to get a hip operation everyone agrees she needs. And then there are the over-stretched mental health services and the lowest morale many health professionals can remember.
Infometrics has calculated that over the past six years, National has left the health service $1.7 billion short of what we need just to stand still. In this Budget the Government will need to commit at least $600 million to meet this year’s cost pressures, let alone make up for what has gone before. This will be a long road back, and we will need to be innovative and focused to get us back to the health system that we should be proud of.
The third priority should be a reversal of the per pupil funding cut for primary and secondary schools that has been seen under this Government. This is placing enormous pressure on schools and in turn on parents. Ask any parent and they’ll tell you the cost of uniforms, class activities and trips are rising. In fact, the cost of education – including your so-called ‘voluntary’ donation’ – is now rising ten times faster than inflation.
We need a re-commitment to the principle of a free education as the basis for equality in our society. A critical marker of success must be that no matter your background, the size of your parents’ bank account or where you live in New Zealand you will have access to a quality education system. It is the greatest legacy we can give the next generation.
The fourth priority would be the rolling out of our Future of Work package. I make absolutely no apology for taking a long term view of creating decent work, higher wages and a skilled and resilient workforce. I can assure you that this issue is occupying the mind of serious politicians and policy makers around the world.
We have already announced the first core element of our programme. Three years free post-secondary school education and training is an essential investment to ensure that all New Zealanders obtain the skills needed for the rapidly changing world of work. We need every worker to have the ability to re-train and learn new skills. The change taking place is massive and it requires bold and positive policy such as this.
The Future of Work package is also focused on developing the decent work opportunities that mark out a modern economy. This means, in part, a focus on regional development and a low carbon economy. My travels in the regions of New Zealand have hit home time and again that there is a great life to be had there, if we create the opportunities for decent work in those areas. Housing is plentiful, people just need the security of work. Government has a direct and indirect role to play in this. Through our own procurement we can give Kiwi businesses a fair go, along with strong support for research and development and investing in our regions to build on the strengths we know exist.
This should be part of a programme of investment in adding value to our economy. Not piecemeal, but long term investment in new, sustainable industries that add value. We must once and for all break from the cycle of over reliance on unprocessed volatile commodities and sectors. We must innovate through research and development and move up the value chain to create the security Kiwi workers need.
The Future of Work programme is also about meeting the aspirations of the next generation of New Zealanders to build their lives at home. This means building wealth from the ground up, supporting their desire to be their own boss, to use their entrepreneurial skills to solve the world’s problems. Andrew Little has already announced our Young Entrepreneur Programme to kick start the careers of those people who already have the big ideas. We need to foster the spirit of social enterprise that motivates so many of our next generation.
Success when it comes to the Future of Work will be New Zealanders having the confidence to grasp the opportunities that arise from new technology, and where we have a just transition for those whose jobs are automated or globalised and where decent work remains core to a secure future.
I expect that the Government will pay lip service to some of these issues in the Budget. Just enough to allow the Government to say we have done something. Well, just enough is not good enough. The language of “social investment” must not be a cover for contracting out and cutting funding.
The Government needs to show how they will turn the tide on the rate of home ownership, the waiting lists for operations, the spiralling cost of education, the rise of unemployment and the sluggish growth of wages. Those are the tests of success in the Budget.
Fundamentally we need to shake off the idea that the fortunate few getting wealthy represents success for New Zealand. Success starts with each and every New Zealander having, in Norman Kirk’s words, something to hope for.
Every New Zealander, whoever they are and wherever they live has the right to believe in a better tomorrow.
To be confident in the knowledge that success and a share in prosperity is within their reach if they work hard and that as a society we will back them with the best that the world can offer in homes, health and education.
We can do so much better in New Zealand than we do today if we invest in our people and measure our success by the opportunity we give to each and every person.