2. CHRIS TREMAIN (National—Napier) Link to this
to the Minister of Finance
What would be the impact on public services if no measures to restrain public debt were taken?
Hon BILL ENGLISH (Minister of Finance) Link to this
The latest projections show that if the Government continued with the rate of spending growth that occurred under the Labour Government, gross debt would rise to 73 percent of GDP, which would lift finance costs to $15 billion per annum. That amount would be enough to fund all of New Zealand’s superannuation entitlements, almost enough to fund every district health board, and sufficient to fund tertiary education several times over. That is why the Government is determined to change the direction of spending that built up under the Labour Government, in order to prevent debt from accumulating rapidly to levels that are unsustainable.
The primary reason that public debt, in the preliminary Budget forecast, was projected to rise to 73 percent of GDP was the undisciplined and reckless increases in spending under the previous Government.
Hon David Cunliffe Link to this
Does the Minister agree with the recent New Zealand Institute report that states: “The loading of New Zealand’s net stimulus package into tax cuts is notable internationally, and one of the likely reasons that New Zealand’s fiscal position is expected to continue to deteriorate while those of countries such as Australia and the UK are expected to recover … As a share of GDP, New Zealand is giving the largest personal income tax cuts of any OECD country.”?
No, I do not agree with the New Zealand Institute. But at least it knows what it thinks, in contrast to the Labour Party, where the leader of the party is for and against tax cuts, and the spokesperson on finance is against and for them.
Hon David Cunliffe Link to this
Does the Minister therefore agree with Moody’s that New Zealand’s debt challenges are limited only and are not as severe as other countries, and does he agree with the IMF’s chief economist that what is needed is forceful action on both the macroeconomic and financial fronts; if so, why is his Government a global outlier in believing that it can deregulate and tax cut its way out of this recession?
I tend to agree with a number of things that Moody’s has said, and with a number of things that the IMF has said. However, this Government makes up its own mind about what is appropriate policy for New Zealand. That policy is focused on lifting this economy out of recession as quickly as possible.
Gross public debt peaked at 75 percent of GDP in 1987. At that point, finance costs consumed 20 percent of all Government spending. As members may remember, it required a monumental effort to get debt back down from that level. This Government has no intention of allowing the benefits of two decades of hard work by parties on both sides of the House to evaporate just because of the recklessness of the previous Government.