SPEECH: Restoring discipline to government policy

Kia ora koutou katoa, ngā mihi nui ki a koutou. Greetings all. It’s great to be in Christchurch.

Let me begin by thanking the Canterbury Employers’ Chamber of Commerce for hosting this event. You do great work advocating for the businesses of this region.

Thanks also to Christchurch Airport for sponsoring our gathering, and for the gateway to the South Island you provide. I’m sure you’re looking forward to welcoming many more people through that gateway this year.

To the familiar faces in the room and those I’m looking forward to meeting, thank you for being here for my first major speech as National’s Finance Spokesperson.

Today I will set out National’s views on how the Government should respond to the major economic challenges facing New Zealand, our expectations of the upcoming Budget and the changes we think are needed to restore New Zealanders’ economic security.

As we meet today our country is experiencing economic challenges that a generation of Kiwis have no real experience of, outside of textbooks. I was just a kid at primary school last time inflation ran as hot as it is today.

I reflect on that as I consider the economic future I hope for my own four primary school aged kids.

I want our kids to face a secure economic future here in the country I love. I want New Zealand to be a place where if they work hard and acquire good skills, they can expect to experience good living standards, not so different from those in other developed countries just a plane ride away.

I want this to be an economy where entrepreneurialism and innovation are thriving and encouraged, whose savvy food producers feed tens of millions of people around the world profitably and sustainably, and that sells our products, services and experiences for more value than we do today and with a lower emission-profile to boot.

A country where if they save hard, more young New Zealanders might realistically hope to buy a house - or more likely an apartment or townhouse to begin with - and without accessing the Bank of Mum and Dad.

And where they and their fellow New Zealanders are part of a safe and socially cohesive community that doesn’t tolerate nightly ram-raids by rampaging youths and where everyone expects to make a contribution to the whole.

A New Zealand where we can expect the Government to deliver effective public services that improve with time, services that deliver results. A Government that is less bureaucratic, more flexible, more responsive and that harnesses technology and data to provide more bang for buck.

Where the infrastructure our people and economy demand gets built fast, affordably and well, with a planning and delivery approach that responds not only to population growth but can provide whatever tomorrow’s ultra-fast broadband network equivalent might be and that helps us adapt to any climate change effects not prevented by global emission reduction efforts.

A country that proudly provides a good welfare safety net for the vulnerable and that is smarter about which well-intentioned Government-funded programmes and interventions actually work.

A country that makes wise, evidence-based social investments to ensure more Kiwis can rise up and out of the state safety net and into lives of independence - complete with better options and better prospects than those that came before them.

A New Zealand where all of that has been achieved with the secure and enduring backstop of strong Government books that have the capacity to absorb the inevitable shock of the next economic rainy day, thanks to leaders that haven’t simply kicked the can down the road, leaving our kids and grandkids to wrestle with more debt but nothing to show for it.

That’s the vision I, Chris Luxon, and our National Party team are working for.

We believe a better New Zealand is within our grasp.

But it is by no means inevitable.

Last week, Chris gave a thoughtful address setting out the key policy areas National believes will help drive New Zealand’s future growth. They were, briefly:

  • Improving the education and skills of our people, starting with arresting the alarming trends of growing school truancy and declining levels of literacy and numeracy achievement.
  • Improving the planning, delivery and financing of the infrastructure needed for growth
  • Enhancing access to technology, innovation and capital
  • Improving the regulatory environment for business, and;
  • Rebuilding our trade, immigration and investment connections with the world.

I started with this positive vision today because that’s the optimistic future I’m motivated to achieve and yet, full disclosure, some of my speech today is a bit dark.

That’s because New Zealand is facing bleak realities.

Now more than ever, New Zealanders need the Government to manage our economy and finances with great care and discipline. To carefully prioritise its choices and to be held accountable for delivering on clearly defined results for its spending and actions.

In ten days’ time, Finance Minister Grant Robertson will deliver his fifth Budget. Sixth, if you count the mini-Budget he announced in 2017.

The context in which the Minister will deliver his fifth Budget is vastly different from that of his first.

In 2017, the departing Prime Minister Bill English and his Finance Minister Steven Joyce had left behind a solid economic foundation.

Since that time, judged by almost every economic measure, New Zealand has taken a great leap backwards.

When National left office, operating surpluses were forecast for successive future years. 

Despite much talk about new budget responsibility rules the upshot is that the Finance Minister doesn’t expect to get the Government books back into surplus until 2025.

In 2017 Treasury forecast net core crown debt tracking down to around 20 per cent of GDP. Today core crown debt is expected to blow out to 40 per cent  of GDP, and the Finance Minister intends to set a new debt ceiling that would allow it to grow higher still.

Not only were the Government books in much better shape in 2017, the typical household was also feeling a lot more financially secure than they are now.

Inflation was running at 1.6 per cent - remember those days?

Wage growth was forecast to significantly outpace that, meaning most Kiwis could look forward to greater purchasing power and a sense they could get ahead.

The official cash rate had sat at 1.75 per cent for more than a year and those re-fixing their mortgages did not have to brace for big interest rate hikes any time soon.

The average house price was around $670,000, at around six times the average income in reach of far more people than the average priced house today. Median rents were $300 a week.

Fast forward to today and things look a whole lot harder for the typical New Zealand household.

Inflation is the highest it’s been in 31 years, a painful 6.9 per cent. It’s a robber at every door.

Savers are watching their deposits erode in value, as inflation eats up interest earned.

Food prices are rising faster than they have in more than a decade, with fruit and vegetables up 18 per cent in the past year alone. 

As one woman told me recently, she now looks away from the ‘screen of doom’ when she stands at the supermarket check-out and notices her heart rate go up as she waits for the checker to read out the total.

Wages can’t keep up. In the past year prices rose more than twice as fast as wage increases, with the Labour Cost Index rising 3 per cent in the year to March.

Kiwis are going backwards faster than at any time on record. 

Layered on top of that, the outlook for home-owners and renters is worrying.

Despite Labour’s promises to solve the housing crisis with a giddy dose of hope and KiwiBuild, the average house is now vastly less affordable, exceeding $1 million - a multiple nine times the median income.

Mortgage holders are facing a future of fast-rising interest payments, with the Reserve Bank having already hiked rates by more in one go than they have in 22 years – and more hikes clearly in view.

The Economist magazine reports that among a group of countries we like to compare ourselves with, New Zealand now has the second largest exposure to interest rate rises, with massive house price increases in recent times and large numbers of homeowners with mortgages.

Many Kiwis are now in a similar predicament to a man I met at the weekend. He and his partner both have pretty well-paid jobs. He’s a skilled tradie and she works at the bank.

They scrimped and saved for years to get together a deposit, jumped through all the hoops and  borrowed big to buy their first home.

Now they are looking down the barrel of fast-rising interest rates. They’re wondering where in their already tight budget they are meant to find those extra thousands of dollars. They’re anxious about the future and the difficult choices that may lie ahead.

The picture isn’t any prettier for renters. Rents are up an average $150 a week since 2017, with $50 of that increase having hit in the past year and more increases expected as landlords lose the ability to deduct a growing amount of interest from their mortgages.

Taken together, rising inflation and interest rates are taking workers backwards fast, with ASB predicting that the typical New Zealand household will face a $150 hike in their weekly costs this year.

And that’s not to squeeze in more luxuries. That’s just to stand still.

It’s a cost of living crisis.

New Zealanders don’t get up and work hard each day in order to go backwards. They expect the Government to come up with a credible plan to put a lid on inflation and ensure people can get ahead once more.

Kiwis are smart enough to know that a formula of more spending, more tax and fingers crossed will not deliver.

We’ve asked Kiwis to share their views on the cost of living via our website. The stories have come pouring in.

What’s striking is how many people feel they belong to a forgotten squeezed middle.

Workers and families who earn too much to qualify for Government assistance and yet are really struggling as the cost of living crisis bites.  

They don’t receive any of the Finance Minister’s so-called ‘targeted’ help because they earn too much to be eligible for a benefit, Working for Families payment, accommodation supplement or similar entitlement. 

Many feel taken for granted by a Government that seems to suggest they’re too rich to deserve relief.

People like Anna who says, “We struggle to make ends meet and keep food on the table for our kids due to the increasing cost of food, petrol etc. We earn too much for any assistance, not enough to get by. I don’t want my kids to miss out.”

And Sarah who says, “We are living week by week, as a middle class family we have never done this before.”

Some of the stories are gut-wrenching.

Like Ben who says, “My partner and I just got married last year. We haven’t really been able to enjoy the first six months of marriage yet because we are stressed about money. Rent is expensive, food is expensive, fuel is expensive. No matter how many hours we work, we are constantly dipping into our savings. It’s only going to get worse soon.”

And Jay who works in administration and says, “By the time I pay my rent, utilities, phone, internet, insurances, fuel, pet food and groceries, I have literally nothing left about two days after I am paid… I feel like I am bashing my head against a wall.”

These stories are just a small window into the pain the cost of living crisis is causing.

Yes, these challenges are being felt to varying extents in other countries, especially those heavily exposed to Russian energy markets. But it is striking that Australia’s inflation and interest rates trail well behind New Zealand’s, while Australian wage rates and forecast growth remain more buoyant.

The bottom line is this: in this year’s Budget, New Zealanders don’t want to hear the Government’s excuses for the cost of living crisis, they want to hear what they’re doing to fix it. 

I’ve previously set out five key steps National would take to help address the cost of living crisis.

1. We would refocus the Reserve Bank on price stability.

Labour overturned 30 years of history by introducing a dual mandate for the Reserve Bank, asking it to target both maximum sustainable employment and price stability.

National would end the experiment and get the Bank focused on one core job: putting the lid back on inflation.

2. We would stop adding unnecessary costs to business, employers, and the productive economy.

At worst, new costs could push some businesses to the wall and at best they’ll add more upward pressure to already high prices. Here’s three examples:

  • National would restore interest deductibility for rental properties.
  • We would withdraw the Fair Pay Agreement legislation.
  • And we would axe the Government’s plans for a Jobs Tax to fund their social insurance pet-project.

3. We would reduce bottlenecks in the economy that are holding back productive growth. 

We would tackle the dependency crisis that has seen 55,000 more people on jobseeker benefits, even while job vacancies are at record highs.

And we would sort out the immigration policy mess that is allowing New Zealand to keep losing skilled workers and that is making it too hard for businesses to welcome desperately needed staff.

4. In this year’s Budget we would prioritise inflation-adjusting income tax brackets to provide income relief for taxpayers.

The Government is one of the only entities to be financially benefiting from inflation. The Crown’s income tax take has boomed by an additional $12 billion since 2017 as inflation has pushed taxpayers into higher tax brackets.

National’s proposed tax package would make a household on the average income $1600 better off. With a price tag of $1.7 billion, it would be fiscally achievable in this Budget.

Most importantly it would be fair on the many people like Lara, who says she doesn’t want more “government handouts”, but just wants to “keep more of what I earn.”

5. The fifth key step needed is to restore discipline to Government spending.

Let me be clear about what this means and what it does not mean.

National wants better public services and in Government that means we will make the investments needed to deliver them. We will improve health, education and other vital services Kiwis rely on.

What we won’t do is accept the lazy approach currently being applied by Labour, which seeks to measure how much a Government cares about something by how much taxpayer money it spends on it.

National understands that public spending has no value if it does not deliver real results for people.

The next National Government will be relentlessly focused on outcomes, not announcements.

We won’t default to centralising every aspect of the economy, be it polytechnics, local water assets or health services. Nor will we resort to another round of working groups each time we identify a new challenge.

National believes every Government has a duty to spend taxpayers’ money as effectively and efficiently as possible. We believe this Labour Government is failing in that duty.

We see clear signs of a culture that has become far too tolerant of waste.

I’m thinking of that $2.75 million for the Mongrel Mob to run a drug rehab programme.

The $24 million spent by Kāinga Ora on renovating its own offices, even while two thirds of the state housing stock is yet to be brought up to the healthy homes standards private landlords are required to meet.

The $51 million spent working up ideas for a now-cancelled proposal for a cycle bridge across the Waitemata Harbour.

Or the hundreds of millions spent hiring backroom public servants and consultants.

Some may dismiss these examples as too small to matter.

They matter because cumulatively they add up, and they matter because they expose a lack of respect for public money.

If you doubt me, then take a look through some of the recent reports published by the Auditor General, the public service watchdog, raising questions about accountability and value for money reporting in a range of Government spending areas from emergency housing to use of the Covid fund.

National will restore a culture of care and discipline to Government expenditure.

Labour’s approach isn’t delivering. It’s simply not enough to make the promise, print the press release, spray the cash, hire some more public servants and walk away. 

I think of the $2 billion allocated to KiwiBuild for 100,000 homes, and as of yesterday only 1304 houses have been built.

Or the $1.9 billion allocated to improve mental health services, without a single extra specialist service delivered.

National will set clear public service policy targets and hold ourselves transparently accountable for delivering results that make a difference for New Zealanders.

We will require detailed and credible delivery plans for significant programmes of significant Government investment.

We will expect our Ministers to roll up their sleeves and drive a step-by-step plan to turn their policies into results.

Is it any wonder then that National has raised questions about how much the Government intends to spend in this year’s Budget? 

Labour super-sized Government spending to help get New Zealand through the pandemic. 

What’s perhaps less well understood is that the Government appears to have baked-in these emergency spending levels for the foreseeable future.

In 2017, Core Crown Spending was $76 billion. This year it is forecast to hit $128 billion, higher than each of the two previous years and a whopping 68 per cent more than in 2017.

Overall, that means Government spending has gone from 28 per cent of GDP in 2017 to 35 per cent this year.

The Government expects a deficit of more than $20 billion this year and doesn’t expect to get the books back in the black until 2025. Net core crown debt is now at $127 billion, 36 per cent of GDP, and is forecast to keep rising. 

Despite these eye-watering figures, in the upcoming Budget the Finance Minister is planning the biggest new operating allowance in NZ history – an additional $6 billion every year for the forecast period.

National’s concern is not only that such high levels of spending could add fuel to the inflationary fire, but also that the Government won’t have put in place the disciplines needed to get the value taxpayers rightly expect from this expenditure. 

We will be assessing the Budget according to whether it achieves the following priorities: relief for the squeezed middle, value for money and accountability for results.

  • Relief for the squeezed middle: Does the Budget deliver meaningful income relief for the squeezed middle who are not eligible for Government entitlements or assistance? Will it provide income relief to the likes of Ben, Jay Lara, Anna and Sarah?

  • Value for money and discipline in Government spending: Have Ministers taken steps to reduce waste in their departments and agencies? What reprioritisation has occurred to drive more bang for buck? What ineffective programmes have been stopped or changed? Just as Kiwis are having to juggle their household budgets to manage unexpected cost pressures, so too must the Government.

  • Accountability and delivery: What are the extra public services and outcomes that will be achieved for any new spending and how will they be measured? Is there a credible plan for delivering them and clear accountability mechanisms for driving results? It will be particularly important to apply these questions to any large spending allocations proposed for restructuring the health system. 

Before I finish today, let me say a few words about climate change policy and the upcoming Budget.

National is fully committed to delivering on New Zealand’s 2050 and 2030 commitments to reduce emissions. 

While the Emissions Trading Scheme is already providing price incentives to encourage a shift away from carbon, National believes New Zealand will need to put in place additional emission-reduction policies in the coming years to help reach our targets in ways that make the most sense for our economy and that as far as possible protect the living standards of New Zealanders.

Just like with policies in every other area, emissions policies should be robustly analysed, include transparent measures for what they will achieve and be backed by credible, practical delivery plans.

We think it’s entirely possible that despite its good intentions, the Government that dreamed up KiwiBuild may propose emission-reduction policies that don’t meet these basic tests.

National will take a careful approach before committing to any specific new emission reduction initiatives the Government may announce in this Budget. 

That includes seeking to understand why one policy or set of policies has been chosen over another. If there are other policies that could deliver greater emission reductions for the same cost then decision-makers ought to clearly set out why they were rejected.

National will go into the next election with a detailed economic growth plan, a fully-costed fiscal plan and a tax and income plan that takes account of the economic conditions New Zealand confronts next year.

I hope today I have shown you the principles and drivers that will inform our policy development over the coming months.

We remain, as always, enormously optimistic about New Zealand, and the potential that is ours to grasp.

We look forward to working with the people in this room to drive the future prosperity and choices our country deserves.