3. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Does he agree with Treasury’s estimate of the fiscal impulse in 2008 of his latest Budget, as set out in the additional information to the Budget Economic and Fiscal Update 2007?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
Yes, and I also agree with the Treasury estimate that fiscal policy continues to lean against domestic demand.
Why does the Minister keep saying that the Budget is leaning against domestic demand when the calculation of fiscal impulse shows quite clearly that his Budget will increase domestic demand, and that will force interest rates up higher for longer?
Hon Dr MICHAEL CULLEN Link to this
Because it is moving off a base of a very large operating and cash surplus, which the Opposition has continually attacked for the last 3 years, and because, as the ANZ suggests, once again a good balance was struck between running a prudent fiscal policy and not fanning an excessive domestic economy.
Shane JonesHon Dr MICHAEL CULLEN Link to this
Yes. At the heart of the Budget were initiatives to encourage saving and investing. I have seen a report that shows that 68 percent of business managers, proprietors, and the self-employed agree with the KiwiSaver employer contributions—and Mr Brownlee nods his head in agreement—and 77 percent support the company tax rate that National voted against.
Can the Minister confirm that the Budget documents show that despite his spin, Treasury calculates that the Budget will increase demand and therefore put pressure on interest rates; that his spending is significantly higher than he forecast just 6 months ago; and that homeowners facing higher mortgage rates, higher overdraft rates, and higher rates on hire purchase believe that he is part of the problem?
Hon Dr MICHAEL CULLEN Link to this
No., I can confirm that spending and revenue are both running ahead of the mid-year forecast, and that the balance is perfectly in line with the mid-year forecast. That mid-year forecast is already taken account of in terms of current monetary policy and market interest rates. The markets these days tend to move in anticipation rather than in reaction.
R Doug WoolertonDoes the Minister agree that encouraging savings has less of a stimulating effect on the economy than, say, tax cuts, while providing the greatest benefits?
Hon Dr MICHAEL CULLEN Link to this
It is clear that over time KiwiSaver will take some demand out of the economy. Indeed, Mr English, in his own speech in the Budget debate, criticised it for reducing consumption. One domestic demand that has clearly been resisted is that by Mr Key for a $2.5 billion a year tax cut fed straight back into demand, which must have led to higher interest rates according to the very logic that Mr English is now pursuing.
Why is it that the Minister can defend his policies only on the basis of accusing National of running a high interest rate and high exchange rate policy, when he is the Minister of Finance and he has overseen the highest interest rates and the highest exchange rate we have seen for years, and when Treasury commentary in the Budget says we should expect interest rates to be higher for longer than previously forecast?
Hon Dr MICHAEL CULLEN Link to this
Because I have also presided over the highest long sustained growth rates for years, and the lowest unemployment level for years, and that has a great deal to do with domestic demand. But Mr English’s leader made it clear in the House yesterday that his view was that the Government should borrow more money to leverage off New Zealand superannuation, and to spend that money by way of tax cuts, which is highly inflationary. We know that Mr English disagrees with that; that is why he is asking these questions today.
Should the Minister not be telling the House that in his own Budget he plans to borrow $4 billion, and will he tell us what he borrowed it for—the sweeteners on KiwiSaver, the company tax cuts, or the increased inflationary domestic spending?
Hon Dr MICHAEL CULLEN Link to this
This year’s Budget shows a level of operating surplus over the next 4 years that is consistent with keeping gross debt to GDP constant. Mr Key made it absolutely crystal clear yesterday that he regarded the growing surpluses in the superannuation fund as a reason why one could borrow more and change what he calls the gearing of the New Zealand Government to fund tax cuts. Mr English needs to ask Mr Key the questions, not me.