2. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
What was the level of gross sovereign-issued debt in 2000 and 2007, in millions of dollars, as recorded on page 23 of the Government’s Financial Statements for the year ended 30 June 2007?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
In 2000, gross sovereign-issued debt was $36.04 billion, or 32.4 percent of GDP, as recorded on page 23 of the Government’s Financial Statements for the year ended 30 June 2007; at 30 June 2007 it was $36.15 billion, or 21.7 percent of GDP.
Does the Minister agree that the figures he has just quoted show that the amount of debt in 2007 is about the same as it was in 2000, when Labour entered office, and does that not strain the credibility of his recent statements that he “seized the opportunity” to lower debt, when in fact he has not paid off one dollar?
Hon Dr Nick SmithHon Dr MICHAEL CULLEN Link to this
But at least I have never been convicted of contempt of court. First, that debt has lowered from 32.4 percent of GDP to 21.7 percent of GDP. The Government is in a far better position to service that debt. Second, the figure of course included settlement cash. Excluding settlement cash, it dropped from $36 billion down to $30.9 billion at 30 June 2003. Third, net debt, which perhaps more accurately reflects the Government’s exposed position—
Hon Dr MICHAEL CULLEN Link to this
No. Net debt is what we owe, minus what is owed to us—just like we have in a household, if the member can understand that simple matter. Net debt has dropped from $21.4 billion to $4.4 billion, which is a $17 billion reduction in net debt in nominal terms.
Hon Paul SwainWas the Minister’s test that personal tax cuts should not be funded from increased borrowing defined clearly in the 2008 Budget Policy Statement?
Hon Dr MICHAEL CULLEN Link to this
Yes, it was. Page 7 of the Budget Policy Statement states that the Labour-led Government’s personal tax package will be consistent with its overarching goals. The Budget Policy Statement went on to state that the package will be consistent with the Government’s medium-term approach to fiscal policy of having gross debt, excluding Reserve Bank settlement cash as a proportion of GDP, broadly stable at around 20 percent. Mr Key has committed National to lifting that to 25 percent of GDP.
Can the Minister now confirm that his test for the tax cuts is not whether he actually borrows money, because of course he is borrowing money this year as we speak, but to keep gross debt at somewhere around the range of 20 percent, which is quite a different test and will enable him to borrow money when he is cutting taxes?
Hon Dr MICHAEL CULLEN Link to this
For some years now the Government’s medium-term fiscal target has been to have debt of around 20 percent of GDP, and we have achieved that target. Now what we have to do is keep around that target. The National Party is promising to lift that to 25 percent of GDP, and the only thing it is promising to do, apart from freezing all public servants, is to cut taxes. It is clear what the extra borrowing is for.
Hon Dr MICHAEL CULLEN Link to this
I tried to explain this to the member yesterday, and Mr Key clearly understood what the Government is doing. The Government is borrowing at a constant rate, because that helps the market and reduces our long-term borrowing costs. Therefore cash is building up in the year when we are not paying off debt, which is this year, and in years when we are paying off debt at higher than the average rate, then that position comes into the opposite situation.
Does the Minister recall saying that if debt-servicing costs increase, that means he would have to cut investment in health and education, and given that his debt-servicing cost has increased half a billion dollars this year—a matter of fact, not conjecture—can he now tell us which services are going to be cut to fund that half-billion-dollar increase?
Hon Dr MICHAEL CULLEN Link to this
As I explained to the member yesterday, this year we are borrowing the same as last year, and as we plan to probably borrow next year, but we have no debt repayment this year. Therefore, we see gross debt go up, but net debt does not. We have more cash on hand; we are earning on that cash. The member has cited the gross finance cost servicing figure, not the net cost after the Government’s interest income.
Why does the Minister persist in pretending that he is not borrowing and that debt-servicing costs are not going up, when he is borrowing and they are going up, and pretending that if someone else does it, it is very bad, but if he does it, it is pragmatic management of the Government’s books?
Hon Dr MICHAEL CULLEN Link to this
I do not ever recall saying that the Government is not borrowing. At least twice every year while I have been the Minister of Finance, I have published documentation showing the Government is borrowing. The member cannot just make it up, and then say: “Ah, the member has confirmed …” what I have already said twice every year, which I also say every time I am in front of the Finance and Expenditure Committee, and every time I have answered a question in this House. He thinks he is being very clever saying it. It is interesting that our medium-term debt target is the same percentage that that member had when he was Leader of the Opposition.
Rodney HideWhat is it that determines total Government spending in the years ahead, and does the Minister think it a good idea that we have a firm target or a limit to set total Government spending in the medium term?
Hon Dr MICHAEL CULLEN Link to this
Part of Government spending is generated by a very wide range of pressures and demands and political choices. This Government made the choice to fund Working for Families; it made the choice to fund 20 hours’ free early childhood education; it made the choice to fund interest-free student loans; it made the choice to fund assistance to business, and so on. It is clear that in the long term, Governments will face some increased spending pressure as the demographic changes start to really bite. If one has committed oneself to a ceiling based on a different demographic situation, at that point one must be delivering poorer health and poorer superannuation services. That is why the Superannuation Fund is there to offset some of that future cost of superannuation.
I get only one supplementary question. Just to clarify, does that mean that anything goes in terms of overall total Government spending?
Madam SPEAKERThat is not a point of order; that is a supplementary question. Are you asking a supplementary question? You have two supplementary questions.
Rt Hon Winston Peters Link to this
With regard to Mr English’s questions, has there been a change in the accountancy rules for the Government, Government departments, and Treasury in the last 9 years; if not, how can the Minister explain why those series of questions have been put in the first place?
Hon Dr MICHAEL CULLEN Link to this
There has been a change because we have moved from general accounting practice to international financial reporting standards. Although that has had an impact on some of the headline figures, actually it makes no difference to the trend, and the differences are not relevant to the kinds of strange questions that Mr English is raising.
Why does the Minister not just admit that by his own measure, when he says he has paid off debt, in fact he has not, and when he says he is not borrowing, in fact he is?
Hon Dr MICHAEL CULLEN Link to this
I repeat that I have never said we are not borrowing. We reduced net debt from $21 billion in 2000, which was about 20 percent of GDP, to $4.4 billion today, which is about 3 percent of GDP and one of the lowest levels in the developed world, and on top of that we have a Superannuation Fund that puts us into a strong net asset position. He has promised in the past billions of dollars of tax cuts, so how on earth can he start criticising the Government for not having been fiscally strong?