3. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Does he agree with the OECD’s assessment of his fiscal policy that “exercising greater restraint now could avoid a longer, and possibly more, painful macroeconomic adjustment process.”?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
It would, in fact, be helpful to give the full quotation: “Greater fiscal neutrality is likely to be unpopular given public pressure for tax cuts and/or additional public spending that would reduce the projected budget surplus. Nonetheless, exercising greater restraint now could avoid a longer, and possibly more, painful macroeconomic adjustment process.” As Mr Key last year said that there was room for $11 billion a year of tax cuts, perhaps Mr English, if he is so keen on the OECD report, could give a copy to Mr Key.
Has he seen the statement made by Dr Bollard, Reserve Bank governor, that the official cash rate review on 26 April this year stated: “As we noted in March, demand is being fuelled by a buoyant housing market, increases in government expenditure, a rising terms of trade, ongoing net immigration, and a robust labour market”; and does the Minister agree, or disagree, with the reference to Government expenditure in that statement?
Hon Dr MICHAEL CULLEN Link to this
I have slightly more up to date information. When that is released, very soon, it will show that Government spending is running at below the forecast level. The Government is running a substantial cash surplus in the current year. In other words, the Government is taking more demand out of the economy than it is putting into the economy. Last year I was attacked, almost daily, by the members opposite—Mr Key nods his head in agreement—for doing precisely that.
Is it now the Minister’s position that his plans for significant new spending in the next two Budgets are having no impact on inflation and thereby on interest rates; and does that mean he disagrees with a further statement made by the Governor of the Reserve Bank: “Strengthening domestic demand is being supported by a resurgence in the housing market and an expansionary fiscal policy.”; and why does the Minister believe that his spending makes no difference, when everyone else knows it does make a difference?
Hon Dr MICHAEL CULLEN Link to this
What is crucial is the balance between spending and revenue; and this Government will continue to run a tighter fiscal policy than the National Party, which the member belongs to, promised at the last election and continues to promise day by day, as every spokesperson opposite issues press statements calling for increases in Government spending in his or her area—like Mr Power, only in the last few days.
When is the Minister going to stop fighting the 2005 election and actually account to the country for his economic management, under which surges in Government spending are contributing to higher inflation, higher interest rates, and a higher exchange rate?
Hon Dr MICHAEL CULLEN Link to this
I will get over the 2005 election much sooner than that member will get over the bitterness of losing in 2002, which affects his attitude to any sensible suggestions about running this economy. That is the man who sabotaged the talks around monetary policy, because he is so bitter about 2002.
How is it that someone who is supposed to be the Minister of Finance blames the Opposition spokesman on finance for current economic conditions, and has also decided to flick off the central issue of the day—which is the way the Reserve Bank is managing inflation—to an inquiry by parliamentary backbenchers; and what is it that Doug Woolerton and Hone Harawira know that Treasury and the Reserve Bank do not?
Hon Dr MICHAEL CULLEN Link to this
I am fascinated that the member describes monetary policy as the central issue of the day, when only yesterday he said there was nothing wrong with the framework for monetary policy.
Given the emphasis by the Governor of the Reserve Bank on the impact of Government spending plans on inflation and, therefore, on interest rates paid by New Zealand families, will the Minister support an inquiry by the Finance and Expenditure Committee into the effect of the Government’s spending plans on inflation and interest rates and into the difficulty that the Governor of the Reserve Bank has in managing that?
Hon Dr MICHAEL CULLEN Link to this
I have already written to the chairperson of the Finance and Expenditure Committee suggesting that an inquiry would be a good idea, but the member, of course, keeps citing potential cuts in the corporate tax rate as being a large part of the increase in Government spending. If there are any such cuts in the Budget, I look forward to Mr English leading his troops into voting “No” for tax rate cuts.
Why should New Zealand families and businesses listen to Dr Alan Bollard’s message to tighten their belts or else he will raise interest rates, and to the Minister’s own message to them telling them to save more and consume less, when the Minister has no plans to tighten the Government’s belt; and why should the Government not carry its share of the burden in the fight against inflation?
Hon Dr MICHAEL CULLEN Link to this
The Government, for the last 3 years, has been running very, very large surpluses. I have lost count of the number of press statements from members opposite attacking that Government fiscal policy. The Government will continue to run a fiscal policy that meets our long-term fiscal objectives of reducing Government debt to no more than about 20 percent of GDP. This is one of the tightest fiscal policies in the world.
Can the Minister confirm that he is just telling Parliament and New Zealand that he has no intention whatsoever of adapting the Government’s plans to the reality of the current economic circumstances, which are putting people out of jobs in the export sector and pushing families into 15 percent and 20 percent increases in their interest rate outgoings, because he has decided that what he does makes no difference to the economy and that he is right and everyone else is wrong?
Hon Dr MICHAEL CULLEN Link to this
The member seems not to read his own press statements. Mr English, over the last 2 or 3 weeks, has said that the only thing wrong with monetary policy was that Dr Bollard did not increase interest rates earlier and higher than he has done. That is what Mr English said, and that is why he just confirmed in the House a minute ago that if there are tax rate cuts in the Budget, he will vote against them.
When will the Minister take the responsibility that goes with his job, exercise some judgment about the current economic circumstances, and pull those levers that he can, including a cut in Government spending, and stop trying to play games over monetary policy—over which he has no influence, at all?
Hon Dr MICHAEL CULLEN Link to this
When the member sees the Budget, he will realise that I have pulled a number of levers. One of them will open up a trapdoor, down which he will fall.