1. CHRIS TREMAIN (National—Napier) Link to this
to the Minister of Finance
What factors were considered in preparing Budget 2009?
Hon BILL ENGLISH (Minister of Finance) Link to this
The Budget was prepared with the world economy going through its most synchronised recession since the 1930s. The Budget takes steps to protect the most vulnerable by maintaining entitlements and increasing funding to improve front-line services such as health, education, and law and order. It took into account the need for investment in infrastructure such as roads, broadband, schools, and hospitals, and it took the first steps to getting the Government’s books in order to turn round forecasts of skyrocketing debt as the Government looked to be incurring significant deficits for the next 10 years.
Has the Minister seen reports of any alternative strategies to manage the economy through these difficult times?
I have seen some alternative strategies proposed by the Labour Party. A flurry of press releases following the Budget indicated that its intention would be to continue to increase Government spending to the extent where on our calculations the Government’s operating deficit would approach $15 billion next year. In our view, managing Government expenditure back to about $7 billion is a first step towards closing deficits that could still last for 10 years even under good fiscal management.
What are the main differences between the road to recovery outlined in the Budget last week, and that alternative approach?
The main difference is that the current Government’s Budget recognises the reality that the world has changed and therefore its management needs to change. The Labour Opposition’s strategy seems to be predicated on the view that the economy is operating the same now as it was 12 months ago.
Hon David ParkerDid the Minister take into account analysis based on Treasury’s forecast model that showed the Government will be between $8 billion and $23 billion worse off, net of interest costs, by canning contributions to the Superannuation Fund, and why does the Minister hide from the reality that cutting the Superannuation Fund in fact means cuts to future superannuation entitlements in breach of John Key’s promise?
The member should read the statements made by Dr Cullen, the Minister of Finance in the previous Government, who made it explicit that there is no connection between the Superannuation Fund and national superannuation entitlements. The Government’s decision to suspend contributions to the Superannuation Fund is based on one very simple view: when we have $10 billion deficits, and deficits that will run for 10 years, the Government does not have the savings to put into the fund. When we do have surpluses, we will contribute to the fund. That is what was originally envisaged when it was set up by the member’s party when in Government.
A strategy that involved spending at the rate proposed by the Labour Opposition would mean that New Zealand would almost certainly face a credit-rating downgrade if the Government did not get on top of debt. Treasury analysis shows that a downgrade could push up interest rates by as much as 1.5 percent, which is around $50 per week in repayments for a family with a $175,000 mortgage. An immediate and significant increase in borrowing costs for businesses would also lead to more job losses.
Did the Minister take into account New Zealand’s high level of private debt, highlighted this morning by Fitch Ratings as the primary threat to New Zealand’s credit rating; if so, why did he persist with cuts to KiwiSaver, and ruin the Superannuation Fund?
The Government took into account the fact that credit-rating agencies have relied on the low level of Government debt to offset the bad effects of the high level of private debt. That is why this Government decided it could not persist with very large deficits that ran on for more than a decade. We decided to do something about that. Apparently, that is not the view that the Opposition holds. That is its business.
I seek leave to table a letter to the editor from Dr Michael Cullen, asking reporters to henceforth call the Superannuation Fund the English fund, not the Cullen fund.
Mr SPEAKER