Finance Minister addresses growth, inequality

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New Zealand has had up to four percent growth over the past few years but during the same time, according to the OECD, it also had the world’s worst homelessness.

That stark fact was a key part of Finance Minister Grant Robertson’s talk to the Waikato Business Summit as he outlined the government’s approach to the upcoming wellness Budget.

Tax changes, infrastructure challenges and global headwinds were also part of the wide-ranging talk on February 27.

Robertson was the keynote speaker at the summit, held at Hamilton Gardens with all proceeds going to the Hamilton Gardens Arts Festival. He was followed by Michael Bassett-Foss from Te Waka, ANZ chief economist Sharon Zollner and a panel at the well attended event which drew about 230 people to the Spiegeltent on the Governor’s Lawn.

Robertson said a big focus of the past year had been addressing what he described as a “decades-long infrastructure deficit”, including “near to a couple of billion dollars going into transport over the next few years in this region”.

He referred to work establishing special purpose vehicles to fund large infrastructure projects. “To back that up we’ve established a New Zealand Infrastructure Commission which for the first time will plan 30 and 50 years ahead for New Zealand’s infrastructure. That will bring together all of the players, private and public sector, to talk about those plans and make sure we’ve got the best brains in the country working on that.”

Globally, Robertson referred to slowing growth, and three key factors including the China-US dispute.

“There is nobody in the world, in my opinion, that benefits from the two largest economies in the world scrapping with one another in the way they are,” he said.

The other two factors are China’s slowing growth, with its implications for the New Zealand economy, and the situation in Europe. “We’ve seen some data in recent times, particularly manufacturing data out of Germany that does represent a little bit of a slowdown there too, partly related to China of course.”

Nevertheless, he said he has picked up “strong enthusiasm” from the European Union to conclude a free trade deal this year.

“Alongside that we remain ready and waiting for the United Kingdom – whenever they’re ready for a free trade deal negotiation we’ll be there!” he said.

Despite the headwinds, he said there was good reason to be positive about New Zealand’s growth prospects.

“We’re projecting still to have growth rates a little bit under three percent. The IMF is saying to us that the growth rate for advanced economies around the world this year will be two percent so New Zealand is still ahead of the game.

“We will keep our debt levels lower than other countries around the world because we are that small economy that sits slightly at the mercy of the world and part of our resilience relates to that.”

When it came to the tax working group recommendations, Robertson reiterated no decisions had yet been made.

“The working group told us that the New Zealand tax system is by and large operating relatively well, but they did identify some gaps and in particular around fairness in terms of how we treat different sources of income.

“The proposals they have made around capital income are prospective, so it’s not about any of the gains that have accrued up to now, it’s about what would happen in the future if we were to take up their proposals.

“The easy thing to do here would have been to ignore these issues because they’re politically challenging and politically difficult. But if we’re really committed to making sure our economy is in a state to be able to withstand the challenges – but also take up the opportunities – of the 21st Century then we had to take a look at these issues.”

He said he supported Prime Minister Jacinda Ardern’s comment earlier in the week that small businesses and farming communities were at the top of her mind as the government worked through the proposals.

“I agree with that sentiment. Because we’ve had a lot of conversations in New Zealand over the years about property and housing and the impact of tax on that – we haven’t had so many conversations about what it will mean for small businesses and for farms, and so we are acutely aware of the issues that are being raised.”

In response to a question from the audience, Robertson said he thought political will was “definitely” part of the reason a capital gains tax had languished despite being debated for decades. “My view is it’s our responsibility to bring these issues out. We haven’t decided what we’re going to do yet and we’ll see where we get to but not having the conversation to me isn’t an option because I do see a degree of unfairness in the system.

“I suspect it has a little bit to do with the origins of New Zealand and the way that property in particular has played such a big role in wealth in New Zealand, and so anything that touches on that becomes problematic for people.

“You know what, I talk a lot about inequality because it matters to me, I don’t like seeing New Zealand society being unequal.

“We’ve got a level of income inequality in New Zealand that’s high but been relatively stable over a number of years. Asset inequality or wealth inequality, however, has grown significantly, and that’s largely driven by home ownership rates having plummeted. So I think that now is a good time to be talking about this even if we haven’t in the past, if we are serious about trying to address that issue around wealth and asset inequality.”

Addressing inequality was also at the heart of Robertson’s approach to this year’s upcoming inaugural wellbeing Budget.

For many many years we focused on pretty much one 

goal and that’s GDP growth,” Robertson said. “GDP growth matters because it’s a good measure of activity in the economy.

“It shows that things are happening. But it doesn’t measure everything and if we become totally fixated on it, we run the risk of people being left out or left behind.

“So we had three and a half, even up to four percent growth in New Zealand over the last few years, but at the same time the OECD told us we had the world’s worst homelessness.

“We know that child wellbeing has reduced and child poverty has increased, we know that our rivers are more polluted than they ever were, we know that people feel less secure in their communities.

“So you can have economic growth but if it doesn’t balance up in the rest of society then we ask ourselves, is that success for our country?”

He said the wellbeing Budget was based on work Treasury was doing, pre-dating his Government, on the Living Standards Framework, which looks at the four capitals: financial, human, environment and communities.

Treasury has developed about 60 indicators to measure progress against.

“So we’ll be doing that and an example is in the child wellbeing area, where as Minister of Finance we changed the law so that I’m obliged to report on how we’re going and improving child wellbeing against specific indicators in each Budget, and we’re looking to do that across a number of areas.”

He said the Budget would have five priorities based on the information about what matters to New Zealand’s overall wellbeing.

“Two of them are broadly in the economic wellbeing sphere. The first of those is around the just transition to a lower carbon economy, and the second is around, how do we grasp the opportunities and meet the challenges of the future of work in a rapidly changing technology? How do we help businesses get on board with that, how do we get communities connected?

“The third, fourth and fifth priorities are all more in the social area and they are based on evidence, and on what we’ve concluded from that Treasury work, from talking to experts and our science advisors, [and]will make the difference to long-term intergenerational wellbeing.

“And those three are in the area of child wellbeing, and in particular with a focus on the impact of domestic and sexual violence; secondly around closing some of the gaps, and disparities that have emerged in Māori and Pasifika economic and social opportunities, the evidence tells us we have to address that; and then finally the one that I think most people will associate with wellbeing, which is mental health, making sure that mental health and wellbeing of our people is primary in the way that we do our work.

“You might say, every government says that. The difference with this Budget is now every minister is responsible for each of those priorities.

“So in terms of mental health it’s not just the Minister of Health who’s responsible for that – it’s what the Minister of Education can do, what does the Minister of Corrections do to support mental health, housing, social development.

“All of that is now much more integrated, we’re trying to break the silos of government down and we’re trying to look beyond this generation to what will have the biggest long-term impact.”

He said the Budget documents would also look different this year, likening them to business annual reports, with the front two thirds about “what you do, why you do it”, and the final third the accounts.

“The accounts matter, and they will continue to matter to us, we have to be fiscally disciplined, we have to have the economy growing well, but we’ve also got to talk about the why and the what of government, what are the outcomes that we’re trying to achieve.

“So it’s a big change, it’s one that I hope people will appreciate, that it gives us a much better picture of where the government is heading through these challenging and interesting times.”

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