Mr Speaker, Talofa Lava. 

Policies to secure a truly brighter future need to embrace economic, social and environmental policy as equally important components, rather than as competing considerations.  Two weeks ago today, Bill English stood opposite and delivered a 45 minute budget speech about tax.  But switching indirect for direct tax is not an economic policy.  Throwing together spending and revenue assumptions based on growth projections that will disappear if the global financial crisis re-emerges aren’t one either.  And cuts in real terms to research and development, education and health spending don’t make for a social policy.  But these weren’t the worst thing about the budget.  Bill English proved last week that he, and the Government in which he serves, are truly anchored somewhere back in the 20th century when in his entire 45 minute speech, he failed to mention environmental policy once.

The Government’s rhetoric continues to set up a false distinction between “the environment” and “the economy”.  We saw this as recently as this morning in remarks made to the EDS Conference in Auckland by the Minister for the Environment.  The reality is that only by beginning to transition to a lower-pollution economy now can we secure enduring prosperity in the future.  The warning signs that we are already overdue to begin the journey are all there:

• The KPMG report last month warning that our farmers’ efficiency will be surpassed by those of developing countries like Uruguay in 5 years’ time if we don’t innovate;
• Many of our leading businesspeople calling on the Government to promote cleantech investment while Hamilton-based BioVittoria can raise onshore only $8 million of the $20 million it needs to commercialise its zero-calorie fruit-based sweetener;
• Trading partners starting to build border tarrif provisions into their domestic climate change legislation so as to deal with imports from jurisdictions that do not price carbon, or don’t do so adequately;
• High environmental awareness amongst inbound tourists and the purchasers of our goods in affluent offshore markets.

But the Government has shown in the budget that it has turned a deaf ear to all these signs.
Research and development to promote innovation, reduce primary production emissions, and support the cleantech industries that we all know are the path to future sustainable prosperity should have been a priority in the budget.  But the budget results in an almost complete absence of new business research and development spend.  Why?  Because businesses will get assistance to conduct research and development through vouchers and grants – Government handouts in other words.  In comparison, the tax credit that the Labour-led Government put in place would have more than doubled New Zealand’s business research and development spend over only its first four years, because it would have provided a heavy incentive for businesses to invest in research and development rather that get a handout.  Predictions are that it will remain static under the Government’s voucher policy.
This was a massive missed opportunity to increase our business research and development spend, which is woeful compared to other like-sized countries.  National’s decision to axe the 15% tax credit for R&D in 2008 was simply crazy.  Bill English was obsessed about the possibility of the tax credits being gamed, but Treasury was confident that it could close those loopholes and there’s enough experience around the world to show how gaming can be limited – the Australian Government did this in its budget last month. That’s why Treasury recommended that the new Government keep them. 

Investment in cleantech is absent from this budget, Mr Speaker.  Again, this contrasts poorly with the record across the Tasman last month.  There, despite much greater mineral wealth, Australia recognised the importance of cleantech investment as a source of future prosperity by providing Government support for it.  Some of our most innovative business leaders have been urging John Key and Bill English to recognise the urgent importance of future-proofing our economy by a similar investment.  What a tragedy that they have been ignored.

The plain truth, Mr Speaker, is that the Government has no sustainable vision for New Zealand’s future.  Its actions show that its only strategy is to promote more intensive food production, and more intensive minerals extraction.  Get it out of the ground, ship it offshore to be consumed, and hope that it helps the balance of payments.  And on the way, shift as many costs to the taxpayer as possible, and away from polluters themselves as they intensify production or extraction.  Never mind the environmental consequences, or our international reputation.  Never mind whether the allocation of risk is fair as between taxpayers and offshore businesses.  Never mind if the profits actually stay in New Zealand to be invested in our future here.

Mr Speaker, if the Government was not willing to invest in new environmental initiatives, then at the very least they might have compensated for cuts made in last year’s budget.  The budget documents contain no new initiatives to make up for the funds taken from Vote:Environment or Vote:Conservation last year.  There’s nothing to restore great initiatives like Enviroschools which have had their funding slashed.  Nothing to make up for cutting any encouragement to Government – which accounts for one-third of our economic activity – to work in a carbon neutral way.  It’s instructive that all Kate Wilkinson’s press release about the Budget could do was trumpet the building of cycle and walkways which are to be built, but failed to mention that there is no new investment here, since DOC is expected to find funding for these initiatives out of its existing budget.

There is no new funding for energy efficiency or conservation in this budget outside of money already announced to meet increased demand for home insulation via the Warm up NZ scheme – itself a re-worked version of Labour’s home insulation scheme.  This was one of Labour’s first complementary measures to be funded from the Emissions Trading Scheme that we put in place.  National has replaced that scheme with a taxpayer-funded initiative worth less than half of what Labour legislated for, with no guarantee of ongoing funding after four years.  The Government needs to ensure that everyone has access to a warmer, drier, healthier and more energy-efficient home.  There is no initiative to ensure that this will happen, just as adequate initiatives to encourage efficient energy use across the board, like truly smart meters accompanied by the availability of differential tariffs, are absent from the budget.

A final word about the evident lack of commitment in the budget to fulfilling our country’s climate change obligations, Mr Speaker. 
• No money has been budgeted for to pay for New Zealand’s contribution to the mitigation and adaptation funds to which the Government agreed to contribute when it became a party to the Copenhagen Accord on Climate Change in December 2009.   This contrasts with the $A200m committed in the Australian budget on 12 May for this purpose.   Assuming that New Zealand will need to make a comparable contribution, on a pro-rated population basis at an exchange rate of A$.8:NZ$1.00, just under $50m is missing from the budget documents;
• No provision is made for the 11-fold increase in firms eligible for a free allocation of credits.  The Minister for Climate Change Issues implies that despite this increase, there are no revenue implications, because some newly eligible firms receive a 60%, rather than a 90%, allocation, and many are so small that they will receive only a handful of credits.  Having exempted allocation decisions from the Official Information Act, and given that Minister’s looseness with figures, taxpayers will be justified in taking these assertions with a large grain of salt;
• Over $500m has been carried forward to provide for the value of credits to foresters.   Misleadingly, the Government has described this as ‘payments to plant trees’.   The new figures are said to be based on a 67% uptake in credits, rather than a previously forecast 50% uptake.  There is no adequate explanation for the change in assumptions;
• No provision has been made for the financial impact of the Emissions Trading Scheme after the expiry of the Kyoto Protocol at the end of 2012.   The explanatory notes to the budget describe the ETS as revenue neutral after that date because “New Zealand has no international commitments beyond this period”.   It is extremely unlikely that the Kyoto Protocol will expire without developed nations agreeing to carry forward at least their current level of obligation.   Assuming the current level of Government obligation going forward, $500m per year appears to be missing from the budget’s forward assumptions after 2012;
• The explanatory notes go on to assume net revenue recycling through fiscally equivalent, unspecified tax reductions or spending increases after 2012.   This is despite Treasury’s advice last year, when the ETS was being amended, that the long-run costs of the changes, particularly granting big industrial emitters and agriculture more free carbon credits for longer, could cost $110 billion, or 13 to 17 percent of GDP, by 2050.  This, by the way, shows how irresponsible any calls – such as that made earlier this week by Phil O’Rielly, of Business New Zealand,  to make the scheme more generous - are;
• In that regard, there is no modelling of the cost of the two modifications to the scheme most often floated by National – delaying the entry date for agriculture beyond 2015 and continuing the 50% surrender obligation on a fixed-price basis beyond 2012.   Both changes would represent a significant further shift of cost from emitters to taxpayers.

Mr Speaker, this was an irresponsible budget, with no vision for any sort of a brighter future for New Zealand.  At the next election, New Zealanders will give their verdict on it, and that verdict will not go National’s way.  I’m proud to support Phil Goff’s amendment to the motion that the Bill be read a second time.