3. Hon BILL ENGLISH (National—Clutha-Southland JOHN KEY (National—Helensville) Link to this
to the Minister of Finance
) on behalf ofDoes he consider that wage growth over and above growth in labour productivity has been a key driver of inflation; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
No, I agree with the Governor of the Reserve Bank, who stated last week that “the main driver of the strong demand is household spending linked to a still buoyant housing market.”
Is the Minister concerned at all that the latest figures from Statistics New Zealand show that core central government wage and salary rates, excluding those of teachers and nurses, rose by 1.8 percent in the September quarter—the highest quarterly rise since the labour cost index was begun?
Hon Dr MICHAEL CULLEN Link to this
Obviously, the Government will keep a close eye on movements in public sector wages. It is hard to argue that the movement in public sector wages in that quarter is the cause of an inflationary pressure that has been developing for some time, particularly given the previous comments of the member’s leader in quoting Milton Friedman that inflation is always and everywhere a monetary phenomenon.
Is the Minister at all concerned that in the light of the biggest ever quarterly increase in central government wage and salary rates, the same index shows that the increase in private sector wage and salary rates is less than half of the increase in the Government rates; and can he explain why New Zealanders should think they are getting value for money when Treasury has told him there is no indication of better services or better results from the big increase in expenditure on Government services?
Hon Dr MICHAEL CULLEN Link to this
I think that the last part is a highly contestable conclusion, given the large increase in the number of surgical procedures that have been carried out, and the increased number of staff in areas such as corrections, police, and so on. Private sector and public sector wages do not always move exactly in harmony over the short term. But I contest the original claim by the member, which sounds as if it came from one of his secret National Certificate of Educational Achievement markers. If he thinks that a 1.8 percent movement in a quarter is higher than public sector wage rate movements either in the early 1970s or from about 1984 to 1985, he has a very short memory.
Does the Minister agree with the Council of Trade Unions’ secret post-election briefing, which states: “We have been concerned that many workers now believe that the fiscal surplus is larger than it needs to be and this has given impetus to the case for tax cuts.”, or does he consider that that is just another ideological burp?
Hon Dr MICHAEL CULLEN Link to this
I thought that was an extraordinarily well-digested comment, because the Council of Trade Unions was saying that thanks to the propaganda put out by both the National Party and the Exclusive Brethren on its behalf, people have come to misunderstand what the operating surplus is. Of course, one cannot have it both ways. One cannot say that the Government has a large operating surplus and, at the same time, say that it has been spending far too much.
Heather RoyDoes he consider the interest write-off for student loan borrowers will be inflationary; if not, why not?
Hon Dr MICHAEL CULLEN Link to this
No, I do not consider it is likely to be inflationary, given the relatively small impact overall within the economy. It is much less so, for example, than if the Minister of Transport was to reply “Yes” to question No. 8, then in the short term push a huge amount of extra money into the National Land Transport Fund—as the National Party is asking for today.
Does the Minister agree with this statement from the same briefing made to him by the Council of Trade Unions: “We also believe that it makes sense to bring forward the first inflation adjustment to tax brackets from 2008 to 2006.”, and does this statement confirm he is coming under pressure even from his own party to make tax cuts?
Hon Dr MICHAEL CULLEN Link to this
I am sorry to disappoint the member, but the Council of Trade Unions is not a member of, nor affiliated to, the Labour Party. But I have to say that, after all this time since May, it is nice to find somebody who liked the indexation proposal.