3. CRAIG FOSS (National—Tukituki) Link to this
to the Minister of Finance
What would be the financial situation if no changes to current policy were made in the forthcoming Budget?
Hon BILL ENGLISH (Minister of Finance) Link to this
The Budget Policy Statement announced in December showed that the Government had inherited a large and ongoing fiscal imbalance. This was due largely to a 50 percent increase in expenditure over the past 5 years without matching revenue increases. Preliminary Budget forecasts show recurring operating deficits of more than $10 billion a year, and that the Government would be continually in deficit for the next 15 years. As a result, if nothing was changed, gross debt would climb steadily from the current level of around 20 percent of GDP to in excess of 70 percent by 2023, and still be climbing.
If the Government continued the projected spending levels under the previous Government, combined with the recession’s impact on our tax revenue, Government debt would quadruple over the next decade, eventually reaching $30,000 per New Zealander. Of course, at that level it would require radical steps to bring it under control. It would also create additional finance costs equivalent to around $5 billion per annum today. These costs do not allow for the detrimental impact on growth and access to credit that such an outcome would inevitably create.
Hon David Cunliffe Link to this
Which of the Minister’s two positions does he now stand by: his earlier position that there was no debt problem, and that therefore tax cuts should have been given earlier to New Zealanders; or his position now that there is a debt problem, and that therefore he must have been wrong to call for earlier tax cuts?
It is certain there is potentially a debt problem, and a significant driver of that debt problem was the previous Government’s refusal to implement tax cuts. It used those surpluses to commit to structural spending levels growing at twice the rate of the economy. That is unsustainable and will have to change.
The Government has already outlined a number of principles. It is committed to retaining social entitlements, committed to improving public services, and committed to reprioritising spending so that taxpayers’ money goes to those areas where we can make a real difference to New Zealanders and maintain better, smarter public services.