1. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Does he agree with recent media reports that fixed 2-year mortgage rates are likely to exceed 10 percent?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
If we had a National Cabinet with Roger Douglas in it, I am sure that would be very likely. Luckily, the combination of the two together is a self-controlling prospect.
Does he agree with recent media reports that fixed 2-year mortgage rates are likely to exceed 10 percent?
Hon Dr MICHAEL CULLEN Link to this
My previous answer referred to a hypothetical future, which is unlikely to happen; I am sure, indeed, that it will not happen. The member, like many others, is referring to other possible hypothetical futures.
Charles ChauvelWhat reports has the Minister received on factors that do drive mortgage interest rates in New Zealand?
Hon Dr MICHAEL CULLEN Link to this
I have received reports—[ Interruption] So the National Party does want to slash spending; we have got that clearly on the record. Thank you. I have received reports of the continued fallout from the subprime mortgage crisis in the United States, and the subsequent unravelling of credit markets is putting direct pressure on the New Zealand banking system, in terms of its ability to lend. The banks are finding it difficult to access affordable credit, and are raising mortgage rates as a consequence.
Does the Minister agree with the Prime Minister that mortgage rates are not going through the roof; and, if an increase in a 2-year rate from 8 percent—just 18 months ago—to 9.5 percent now, is not a big increase in mortgage rates, then what would be?
Hon Dr MICHAEL CULLEN Link to this
What would be is what the Prime Minister was referring to, is what would have happened if Mr Key had had the chance to introduce $11.5 billion worth of tax cuts a year, and the impact that that would have had on the need for credit, and indeed on a fiscal stimulus forcing extremely contractionary monetary policy as a consequence. I thank the member once again for a patsy question where I can attack his leader.
Does the Minister recall warning his Cabinet colleagues in the 2007 Budget that they needed to stick to their spending cap because they risked an interest-rate response from the Reserve Bank, the exchange rate staying higher for longer, and a more pronounced economic slow-down; and is it not correct that they did not stick to their spending cap and we have ended up with an interest rate response from the Reserve Bank, the exchange rate staying higher for longer, and a more pronounced economic slow-down, even if more recent events have made that worse?
Hon Dr MICHAEL CULLEN Link to this
What I can confirm is that this Government has consistently run a tighter fiscal policy than the Opposition has suggested it should be running. Every year the National Party has proposed a looser fiscal policy than the Labour-led Government, then said that interest rates are too high.
Has the Minister received any reports on views about the future prospects for the economy and for mortgage rates?
Hon Dr MICHAEL CULLEN Link to this
Yes, I have. I received the following report from Mr John Key: “Um, I was, I was out there actually being a bit negative or saying, saying, you know, look, I was a bit concerned about the, the economy, but I mean one of the things, and I often say this to business audiences, particularly when I get up, that look, I, it’s very easy when you are the Leader of the Opposition to sort of see shadows, because you know, quite honestly, in weaker economic conditions Governments often get booted out, um, so you’ve got to be careful you don’t get too negative on things when an Opposition politician because you can, you can see bad things in, in a lot of things, and that may not always, you know, always be right, so um.” And that was the finish.
Can the Minister explain what the Prime Minister meant when she said that mortgage rates are not going through the roof, when, in fact, mortgage rates are rising more quickly than they have for a very long time, such that people who borrowed money 18 months ago will find themselves rolling it over in another 6 months at 2 percent higher than they borrowed it, and on the average mortgage that will cost them over $100 per week from their household budget?
Hon Dr MICHAEL CULLEN Link to this
Firstly, the Prime Minister in her speech at the start of this year acknowledged that people were facing increased mortgage rates, and that was causing stress to some people. Secondly, the member opposite, when discussions occurred around monetary policy, said that the Reserve Bank of New Zealand should be allowed to do its work and, indeed, attacked the Governor of the Reserve Bank for not raising interest rates earlier and faster. Thirdly, interest rates have been much higher in New Zealand in the past, which can be remembered under, indeed, Sir Roger Douglas, who is now looking for a job in a National-led Cabinet.
Heather RoyWhen a 1 percent increase in interest rates on a $200,000 mortgage costs a family an extra $40 a week—and there have been plenty of 1 percent increases while he has been Minister of Finance—what action does he intend taking to alleviate this problem affecting hundreds of thousands of Kiwis as a result of his actions?
Hon Dr MICHAEL CULLEN Link to this
The Minister of Finance, whoever he or she may be, cannot be blamed for international oil prices, for international food prices, for an international credit crunch, or for running the strongest fiscal position in New Zealand’s history, which has taken the pressure off monetary policy. Unfortunately the members opposite, including that member’s party, have consistently called for tax cuts, which could not be afforded and, indeed, today Sir Roger Douglas called for cuts in spending of $3 billion to $5 billion, which would whack the most vulnerable in New Zealand, but called for tax cuts, which at a rough guess on my estimate are about $7 billion to $8 billion a year.
Why is it that for 8 years the Minister has been willing to take credit for every international tide that has flowed for him, such as higher commodity prices and plenty of low-cost, easily available credit, but as soon as circumstances turn on him, suddenly it is everyone else’s fault?
Hon Dr MICHAEL CULLEN Link to this
What we have done during that period is take advantage of that situation so we have the lowest unemployment rate that we have measured. Secondly, we have paid down debt as a proportion of GDP. Thirdly, we have built up the New Zealand Superannuation Fund for the long-term future. Fourthly, we have introduced Working for Families to help low-income families through this period of time. Fifthly, we introduced a whole range of other social policies. Sixthly, we introduced the KiwiSaver scheme in order to help people prepare better for retirement. Every one of those policies was opposed by the National Party.
Can he confirm that the things that are going up under Labour are mortgage interest rates, the exchange rate, the number of people leaving for Australia, which has just gone up again today, food prices, petrol prices, the proportion of income people pay in tax, household debt, and office space occupied by the Government, which is projected to increase by 50,000 square feet in Wellington over the next 2 years; and the things that are going down are growth, productivity, New Zealand’s ranking in the OECD, and his polls?
Hon Dr MICHAEL CULLEN Link to this
What I can confirm is that things going up include things such as the number of people in jobs—far higher than under National. Things going up include the proportion of the workforce that is in paid employment. What is going down is the number of people of working age on social welfare benefits, the number of people who are unemployed, and the number of children living in poverty. What is going up is the number of people who are saving for their retirement. What is going up is the support for early childhood education. What has gone up is the level of New Zealand superannuation under this Government. We are proud of that record.