4. CRAIG FOSS (National—Tukituki) Link to this
to the Minister of Finance
What recent reports has he received on the economy?
Hon BILL ENGLISH (Minister of Finance) Link to this
I have seen several reports, including comments made by the Governor of the Reserve Bank today. The basic picture is that the economy shows signs of stabilising following a recession that has lasted about 18 months. Growth is not yet strong, but at least the economy appears to have stopped contracting at the rates of last year and earlier this year. There is, however, a marked difference between leading and lagging indicators. Lagging indicators such as employment are still worsening; we expect unemployment to keep rising for some time. By contrast, forward-looking indicators such as business and consumer confidence have improved over the past 6 months.
Employment is one of the last indicators to respond to changing economic conditions. It is the last to improve in an upturn and the last to turn down when the economy is slowing. So, unfortunately, unemployment is likely to continue to rise. The household labour force survey for the June quarter will be published next Thursday. We expect it to show an increase on the 5 percent unemployment rate reported for the March quarter, as the impacts from the recession continue to show through.
Hon David Cunliffe Link to this
In light of the massively rising unemployment, is he concerned that the OECD has recently re-rated the efforts of his Government’s stimulus package from the claimed 5 percent of GDP to only 3.5 percent of GDP, and has dropped New Zealand’s rating from the top five to the ninth in the OECD on a per capita basis; and can the Minister therefore explain why his Government is retrenching at the same time that unemployment lines are growing?
The member just contradicted himself. If there is a stimulus of 3.5 percent of GDP, that is precisely not retrenching. The evidence for that is that the Government is out in the market right now, in the process of borrowing billions of dollars to inject into the economy. One of the effects of that is that our unemployment rate is one of the lowest in the developed world. Despite the fact that Australia has not had a technical recession when we have had seven quarters of contraction, our unemployment rate is still lower than Australia’s.
The National Bank’s National Business Outlook shows an improvement in business confidence, but, as I have said before, an improvement in the outlook for businesses is not a guarantee that unemployment will stop rising, nor is it a guarantee that the economy will pick up strongly. We would expect that, on the basis of these indicators, the economy will show some improvement in the last quarter of this year or perhaps in the first quarter of next year, but the situation remains patchy. Some businesses are doing quite well, and others are really struggling.
I have seen one relevant comment, and I will quote: “Any mug, or any Government, can overspend, live on borrowed money, and, in the short term, sustain consumption and demand, and thus keep unemployment down a little lower than it otherwise would have been.” Those comments came from former employment Minister Phil Goff, when he was the fresh face of the Labour Party. He appears to have changed his mind, though. Well, it was 20 years ago! It—
Mr SPEAKER