In the last clash of the leaders of the year in Question Time both Russel Norman and Andrew Little quizzed John Key on the OECD report on income inequality.
Norman was first.
[Sitting date: 10 December 2014. Volume:702;Page:1. Text is subject to correction.]
1. Dr RUSSEL NORMAN (Co-Leader—Green) to the Prime Minister : Does he agree with the OECD that “when income inequality rises, economic growth falls”?
Dr Russel Norman : Is the Prime Minister saying that the OECD Secretary-General, Angel Gurria, got it wrong when he said yesterday that “addressing high and growing inequality is critical to promote strong and sustained growth”?
Rt Hon JOHN KEY : No, I think that that helps. That is one of the reasons why the Government is proud of its record, as defined by the OECD in a table that it put out last night. It showed that between 2007 and 2011, income inequality has actually narrowed under this Government. The great tragedy is that it also put out a report last night that showed that between 1985 and 2005, when a Labour Government was in office for a reasonable period of time, income inequality got worse. Shame on Labour—
Mr SPEAKER : Order!
Dr Russel Norman : Why does the Prime Minister continue to defend a failed right-wing ideology—trickle-down economics, which the OECD has now rejected—when this economic ideology has fuelled the biggest rise in inequality amongst OECD countries and has knocked 10 percentage points off New
Rt Hon JOHN KEY : That is not right. All I can say is that under a National-led Government, income inequality has actually narrowed, as defined by the OECD, between 2007 and 2011. Interestingly enough, if the member is quoting the OECD as the oracle of all good information when it comes to growth and issues of inequality, maybe he would like to follow this comment from the OECD. It said in 2010 in its report: “A growth-orientated tax reform would improve the design of tax regimes by broadening the base and lowering the tax rates of New Zealand.”
Dr Russel Norman : With regard to tax rates, does the Prime Minister believe that when he cut taxes for the top 10 percent of income earners in the middle of the global financial crisis, in 2010, it reduced inequality?
Rt Hon JOHN KEY : As Treasury noted at the time and as has proven to be correct, actually, the changes to the tax system that were made by the National-led Government in 2010 were distributionally neutral. Actually, as time has gone on, it has been proven that higher-income taxpayers have paid more as a result of those tax changes. That is because the Government changed the rules around depreciation of rental properties, the bulk of which are owned by better-off New Zealanders, and it is because even though there was an increase in GST, a large amount of nominal GST is, of course, paid by higher-income taxpayers. They were very good tax changes, and that is why New Zealanders voted for them in an overwhelming way and why they rejected the Green Party policies, and delivered what was—
Mr SPEAKER : Order!
Dr Russel Norman : Will he now revisit his policy of keeping benefits low as “an incentive to work” in light of the OECD finding that the resulting inequality is bad for people and bad for the economy?
Rt Hon JOHN KEY : Inequality is narrowing under a National-led Government. I am proud of that record, as confirmed by the OECD last night in its report. Secondly, the Government is not keeping benefits low. In fact, this is a Government that has legislated to ensure that there are increases in benefits in line with the CPI. The most important thing we can do for beneficiaries—where possible for the bulk of them; clearly not all of them—is to find them work. That is why a strong economy that delivers job opportunities and lifts people out of the welfare trap into work is one of the most beneficial things we can do for low-income families in New Zealand.
Dr Russel Norman : Does he accept the finding of the OECD that the increase in inequality in New Zealand, one of the largest increases in the developed world, resulted in a 10 percent reduction in the size of the New Zealand economy?
Rt Hon JOHN KEY : Well, I do not accept all elements of the report, but I do say this. It was a report that took place on statistical data between 1985 and 2005. In the period between 1999 and 2005, if my memory serves me correctly, the then Labour Government did that with support in various forms from the Green Party. So I say to Russel Norman that, yes, he should apologise to New Zealanders—
Mr SPEAKER : Order!
David Seymour : Would the Prime Minister agree that what the report really found was that growth is driven by the quality of investment in human capital across all income levels; if so, could he share any initiatives that this Government is taking to improve the quality of investment in human capital across lower-income New Zealanders?
Rt Hon JOHN KEY : Yes, I would, and I would say that the OECD actually made a very interesting point when it said that redistribution policies that are poorly targeted and do not focus on the most effective tools can lead to a waste of resources and general inefficiencies. One of the ways I know to do that when it comes to human capital—
Hon Member : What about charter schools?
Rt Hon JOHN KEY : —is to make sure they get access to a world-class education. That was the point I was actually going to come to. I myself, with the member, visited Vanguard Military School and saw the great young New Zealanders who are coming out into employment. I must say how proud I was to be part of a Government that is championing those partnership schools that are making a difference to those young New Zealanders.
Dr Russel Norman : Why can the Prime Minister not see this OECD report as an opportunity to move away from failed trickle-down economics towards a form of economic policy that is both good for people and good for the economy, and has a win-win solution for poor children and for the broader economy?
Rt Hon JOHN KEY : If the member wants to talk about failed policies, he should read the Green Party manifesto, as it was so utterly rejected by New Zealanders. I remember that member parading before the cameras a couple of days before the election, telling New Zealanders that the Green Party would be polling a massive number—basically, throwing the Labour Party overboard because the Greens did not want to be part of it, and in the end, they polled 10-odd percent. It was a terrible result. Bad policies are the Green Party’s policies. This Government is delivering for New Zealanders.
The clash of ideologies did little more than give Key a chance to defend and promote his Government.
Little was next.
2. ANDREW LITTLE (Leader of the Opposition) to the Prime Minister : Does he agree with yesterday’s OECD report that “focusing exclusively on growth and assuming that its benefits will automatically trickle down to the different segments of the population may undermine growth in the long run”; if not, why not?
Rt Hon JOHN KEY (Prime Minister): With regard to New Zealand, under this Government that is a hypothetical question. That is because the Government is providing billions and billions of dollars of targeted income and welfare support to the most vulnerable New Zealanders every year. So it is simply incorrect to characterise our economic approach as trickle-down. I would also point out to the member that the data covered the period from 1985 to 2005. I became Prime Minister in 2008. I know he wants to blame me for everything, and he will for the next 3 years, but it is a little bit difficult to blame me for something when I was not even Prime Minister.
Andrew Little : In view of the figures in the report relying on data to 2011, and in light of his previous answer, what specifically does he think was wrong with the OECD’s analysis when it found that economic growth is undermined by inequality?
Rt Hon JOHN KEY : There are many, many things in the report, but what the report last night showed is that there was a growing income inequality in a period that started with a Labour Government and ended with a Labour Government. That is called a failure of Labour’s policies. Since we have had a National-led Government income inequality is narrowing, and that is because this Government is providing enormous support to those most in need. One great example of that is that under this Government the support that is given to households earning under $60,000 a year—that is, just under half of all households are expected to pay no net income tax at all. The members opposite do not like it, but I will tell you what we do not like—the failure, between that 1985 to 2005 period, of a Labour-led Government.
Andrew Little : Does he accept Statistics New Zealand’s finding that incomes for the top fifth in the year to June 2014—after the date for the OECD report—grew by 14.7 percent, while incomes for the bottom fifth grew by just 2.9 percent, thereby increasing inequality in New Zealand?
Rt Hon JOHN KEY : The last bit is the assumption of the member and it is simply incorrect.
Hon Members : Ha, ha!
Rt Hon JOHN KEY : No, I am sorry, but it is simply incorrect. The first point may be correct, but if my memory serves me correctly, and the member is talking about the data series I have seen in the past, that is because it includes returns on investments and other things, and as the member will—
Hon Member : When was it you got your memory back again?
Rt Hon JOHN KEY : That is right—that is right. The member will know that between 2008 and some period, I think, in 2011 or 2012, there was a decrease each year because those returns were negative.
Andrew Little : Does he accept the finding of the New Zealand Institute of Economic Research that loan-to-value ratio restrictions have led to home purchases by speculators leaping as high as 45 percent, while the number of first-home buyers has fallen, all of which is making inequality in New Zealand worse?
Rt Hon JOHN KEY : No, I do not accept that as being correct. I will remind the member that it was his party that actually supported loan-to-value ratios in the early days, but that is another issue. Here is the point: loan-to-value ratios were part of the tool box deployed by the Reserve Bank governor. Without that, interest rates would have gone up by at least half a basis point for all New Zealanders, and that would have had a very significant impact on lower-income New Zealanders. Actually, what we know is that economic growth is being delivered at high levels by this Government, and that follows the economic disaster that we inherited from the previous Labour Government.
Andrew Little : Does taking away the rights of low-paid workers to better pay, secure work, and even tea breaks make them economically stronger or weaker compared with their employers?
Rt Hon JOHN KEY : We are not doing that. What we are doing is providing flexibility in the labour markets. Interestingly enough, last week Mr Little was trying to tell New Zealanders that somehow small businesses are now working New Zealanders, and that they would have his support. They would have his support so much that they would not be allowed a 90-day probationary period, they would not be allowed flexibility in their labour markets, and they would have to pay a much higher starting-out wage or a much higher minimum wage. I know why the member is supporting his policies; it is because his caucus did not vote for him, but the unions did.
Mr SPEAKER : Order! That answer will not help the order of the House.
Andrew Little : Given the OECD’s finding that increased inequality has made the economy 15.5 percent worse off since 1990, how does he plan to reduce inequality in order to grow the economy faster?
Rt Hon JOHN KEY : Income inequality is narrowing under a National-led Government, as supported by the OECD. The members cannot have it both ways. They cannot say one OECD report is right and another one is wrong. The only point I would make is simply that the member needs to go away and get his facts right. Under the report where income inequality was widening was under a Labour-led Government. I know it is a disgrace, but that is why they were hammered at the polls—it is because they were a disgrace. [Interruption]
Andrew Little : Save your applause for a decent performance. Why is he so unambitious that he does not want to boost future economic growth for all New Zealanders? Is it because he is still trapped in a 1980s time warp?
Rt Hon JOHN KEY : I am very ambitious for New Zealand and for the growth rate of New Zealand. We are delivering on that growth rate for New Zealand, which is why it was nearly 4 percent this year. I am so ambitious that if I put my leadership up for a vote, I would expect more than four people to vote for me. [Interruption]
Little was gained by either attacks.
That was the last of the leaders’ clashes for the year,