3. CHRIS TREMAIN (National—Napier) Link to this
to the Minister of Finance
What reports has he received on New Zealand’s economic and financial performance?
Hon BILL ENGLISH (Minister of Finance) Link to this
This morning I received a report from Statistics New Zealand that the current account deficit for the year ended December 2008 has increased to over $16 billion, or 8.9 percent of GDP. The deficit has now been above 8 percent of GDP for 4 successive years. The cumulative increase in New Zealand’s net foreign liabilities during this period is in excess of $57 billion.
Ten years ago the previous Minister of Finance, Dr Cullen, made a huge deal about how the current account deficit proved that all the economic policy for the preceding 15 years had been a failure. At that stage it was just $4 billion, or 4 percent of GDP. That was before Labour embarked on a strategy of import-led growth, which has led to a doubling of the current account deficit.
Hon David Cunliffe Link to this
Can the Minister explain why, given the growing current account deficit, the Government has cut KiwiSaver, which encourages savings, deepens capital markets, and reduces the gap in the current account, and would that not make just about as much sense as—I do not know—appointing Rodney Hide to oversee the Commerce Commission?
The Government is committing somewhere around a billion dollars to KiwiSaver as incentives. But New Zealanders are changing their savings habits now. They are pulling back on consumption and increasing their savings in a way that is nothing to do with KiwiSaver but all to do with an adjustment that needs to occur in this economy.
First, there should be an adjustment so that those export sectors where New Zealand is genuinely competitive can prosper. Second, we need to be mindful of debt levels, and the ratings agencies are reminding us of that. The net result of this blowout in the current account deficit is that now almost one-twelfth of New Zealand’s output accrues to foreigners.
Hon David Cunliffe Link to this
Given that innovation increases productivity and reduces the current account deficit, why has the Minister cut the Fast Forward fund and the research and development tax credits; and why has the Government dismissed the findings of the Finance and Expenditure Committee’s monetary policy review, when manufacturers and exporters have been—
Mr SPEAKER
Hon Annette KingWell, as a matter of fact, if the Deputy Leader of the Opposition is interested, I tell her that he did not actually start to ask a question. I thought the speech had gone on long enough.
I was going to allow the Minister to answer anyhow, because the member did get on to a question eventually. But maybe we had better have a question. Could the member ask a question, please.
Hon David Cunliffe Link to this
Why has the Minister cut the Fast Forward fund and the research and development tax credit, and why has the Government dismissed the findings of the Finance and Expenditure Committee’s monetary policy review, when manufacturers and exporters are being killed by exchange rates that bounce around like yo-yos?
The reason the Government has got rid of the Fast Forward fund is that the fund amounted to the Government borrowing money to put into the fund, to go and invest in the Government bonds that it had borrowed in the first place. It was a nonsensical money-go-round of $700 million, set up simply for branding purposes in election year.
John BoscawenWhat plans does he have to act on the advice of the Inland Revenue Department, which in its briefing to him as incoming Minister reaffirmed that a broad based - low rate tax system, as provided for in National and ACT’s confidence and supply agreement, is “fundamentally sound”?
The Government has acted on those principles, probably prior to the advice from the Inland Revenue Department. Tax cuts will come into effect on 1 April, and they will move us further in the direction of a broad based - low rate system. We announced a small to medium sized enterprise package just a few weeks ago, which has made a number of changes, again in line with the principle of a broad based - low rate system. Over the next 4 or 5 years, when revenue is going to be very tight, it is important—in fact, it is vital—that our tax system is as efficient as possible.