The BFD | National Will Steer the Boat

Speech to Financial Services Council Conference

It’s my pleasure to be speaking with you today, leaders of New Zealand’s financial service providers.

Since I became National’s Finance Spokesperson I’ve really enjoyed meeting many of you and I’m looking forward to getting to know more of you in the months ahead.

Let me start simply by saying that National values your contribution to New Zealand.

Your work supports the financial security of families and businesses across the country – whether by helping people grow their retirement nest-egg, providing them financial advice or giving them the peace of mind afforded by insurance.

National shares your desire to see Kiwis better off, and for this to be an economy that is more productive, sustainable and prosperous.

We share your concern about the cost of living crisis, with prices rising faster than in 32 years, declining real wages, acute worker shortages, and too many Kiwis lacking confidence about their economic future.

We all understand that some of the challenges facing New Zealand are outside our direct control: geo-political tensions, climate change and supply chain challenges are our reality.

What’s also true however is that Government decision-making over the next few years will have an enormous influence on how well New Zealand can cope with those challenges.

We can’t control the sea in which we sail but we can steer the boat.

Now, more than ever, Government must provide careful economic management that gets the basics right: taking care not to add unnecessary costs, reducing regulatory and policy barriers that choke growth and innovation, ensuring Government spending is disciplined and delivers results, squarely focusing the Reserve Bank on price stability, and ensuring we don’t over-tax New Zealanders.

What does that mean for your industry?

It means National wants to work alongside you to deliver better results for the New Zealanders we serve.

Today I’d like to briefly set out two key areas where we will take a different approach than the current Government: the nature and scale of regulation and the proposed income insurance scheme.

First, we will take a much more careful approach to Government regulation and red tape.

In recent years well-intended but poorly executed regulation has imposed massive costs on New Zealand.

The financial services sector knows all about it. Waves of new requirements from overlapping regulators, with seemingly no coordination and a complete absence of strategic coherence.

Too often, those who’ve been consulted about proposed changes have had their insights ignored, with great costs created as a result.

The complex regulations created under the Credit Contracts and Consumer Finance Act (CCCFA) are a case in point. Well-intended legislation, sabotaged by heavy-handed, prescriptive regulations that ended-up choking mortgage lending and consumer credit.

Those badly designed regulations had a massive human cost: I have spoken to too many distressed prospective home buyers who gave up on their home ownership dream in the wake of those changes.

Yes, I know the Government has back-tracked to fix the worst of it, but how much better would it have been to listen to you in the first place?

It’s no wonder that many business leaders are left asking: What is the point in the endless rounds of consultations and submissions if Government officials don’t actually want to listen to what you have to say?

The KiwiSaver Tax debacle was another example. In that case fund managers explicitly warned officials of the impact proposed GST changes would have on fees, contributions and KiwiSaver fund balances, gently suggesting New Zealanders would be unlikely to welcome it. Again, the submissions were ignored until it was too late, with the eventual policy back-down as inevitable as it was avoidable.

The good news is that a better way is possible.

National sees big potential productivity gains with a smarter more coordinated approach to regulation, genuine engagement with industry and simpler reporting frameworks.

We want your industry spending more of your time innovating for the betterment of New Zealanders and less of your time navigating red tape.

I’ll turn now to the Government’s proposed taxpayer-funded income insurance scheme.

Let me be upfront: National opposes it.

It’s a solution looking for a problem, a threat to New Zealand’s economy and a tax on jobs.

The income insurance scheme proposed by the Government would pay people 80% of their wage for up to six months after they lost their job. A sort of gold-plated social welfare scheme.

Let’s remember, New Zealand already has a well-functioning social welfare safety net for people who lose their jobs.

That system operates on a simple assumption – that people who can work should: Work is about more than income, it is a source of identity, relationships, and dignity.

For many years, New Zealand governments have therefore operated our welfare system on the principle that in order to encourage those who can work to seek and stay in work, we should ensure paid work is more lucrative than welfare.

The Government’s proposed income insurance scheme would threaten that principle by creating a far more generous taxpayer-funded welfare system for a select group of New Zealanders.

It would encourage some workers to stay out of work longer than they otherwise would, trapped by the golden handcuffs of 80 per cent pay with no obligations.

Not only would this scheme add complexity to our existing system, it would also, in the Salvation Army’s words, “result in a two-tiered approach to welfare that is more likely to increase inequalities than reduce them”.

Economists point out that similar schemes around the world have resulted in very damaging effects: increasing the number of unemployed people, increasing how long people stay unemployed, reducing people’s incomes and adding pressure to inflation.

Put simply, the Government’s proposed income insurance scheme would be bad for New Zealand’s economy. It would create a lose-lose situation for workers and employers by keeping workers out of workforce for longer than would otherwise be the case.

That’s not actually an unintended outcome of the idea – it’s exactly what it’s designed to make possible. This intent seems totally at odds with the emerging shortage of workers and skills that demographics suggest will persist and potentially intensify in the years ahead.

What’s more, the Government’s proposed scheme would cost an eye-watering $3.54 billion every year. In fact, some experts suggest that number underestimates the full extent of the cost.

For context, $3.54 billion is more than the annual Budget provided to the New Zealand Police.

It’s a huge amount of money.

So how does the Government intend to fund it?

You guessed it, with a new tax. The jobs tax. A tax on every worker and a tax on every employer.

The new jobs tax of 1.39 per cent would be levied on every worker, every year and every employer, every year.

We’ve crunched the numbers.

The tax would make a typical worker earning a median wage $834 worse-off each year.

$834 worse-off for a policy you probably never asked for.

That’s $834 so some people can stay out of work, on better pay, for longer.

That’s $834 less for your groceries, your bills, and your own savings.

That’s before we count the cost to employers.

They would also be hit by a 1.39 per cent wage tax for every employee on their payroll.

For a small business with ten employees on median wages, that would add $7200 to the annual tax bill.

That’s $7200 that would no longer be available for pay rises, for new staff or new investments.

It’s another cost for business that would be passed on in higher prices for New Zealanders.

Workers would wear the financial burden of the jobs tax twice: once in more direct tax and second in higher prices.

Our country simply can’t afford this sort of reckless policy.

I know some in this room have suggested that the Government could draw on your expertise as it designs the scheme. After all, many of you already provide income protection schemes for New Zealanders. And good on you for providing those products.

However, I don’t think you should hold out hope that the Government will partner with the private sector on this. The Finance Minister has already allocated $60m to ACC to develop the scheme.

National’s position on the proposed income insurance scheme is clear:

We oppose it. We oppose the jobs tax needed to fund it. And we are calling on the Government to drop it.