4. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
How much does Treasury forecast inflation will rise to in the year to March 2011, and what policy changes will contribute to this rise?
Hon BILL ENGLISH (Minister of Finance) Link to this
In Budget 2010 Treasury forecast inflation at 5.9 percent for the year to March 2011. However, the inflation of just 0.3 percent in the June quarter was well below Treasury’s quarterly forecast of 0.7 percent. As a result of that, Treasury now expects inflation to peak at close to the Reserve Bank’s forecast of 5.4 percent. The member will be familiar with the one-off factors: the 2.5 percent increase in GST, which will be more than compensated for by tax cuts; a rise in tobacco excise, which the Opposition supported; and an amended emissions trading system, which adds only half the price increase of the version that the previous Labour Government supported.
Hon David Cunliffe Link to this
On the back of an inflation rate that is to be greater than 5 percent next year, is he concerned that today’s increase in the official cash rate will add further pressure to the stretched budgets of families, who are struggling to stay on top of price increases in food, petrol, and power—which have been affected by his emissions trading scheme—and, of course, struggling to stay on top of more GST on everything?
It is a bit rich to hear Labour going on about the price impact of the emissions trading scheme, when its scheme was to have had precisely double the impact of the Government’s scheme.
Hon David Cunliffe Link to this
I raise a point of order, Mr Speaker. The Minister has no responsibility for Labour Party policy. [ Interruption]
Mr SPEAKERI say to the Hon Paula Bennett that when the Speaker is on his feet, or when a point of order has been called, she must not continue to interject.
The dilemma I have about pulling the Minister up is that the member, in asking his question, talked about the Government’s emissions trading scheme. Once the member introduced that into his question, I could not stop the Minister reflecting on the changes from the emissions trading scheme introduced by the previous Government. I cannot realistically stop the Minister from doing that. The remedy is in the member’s own hands when he asks his question.
Firstly, the fact is that after 1 October a family will be $25 a week better off after the GST increase is taken into account. Secondly, somehow that member’s party increased inflation to 5.1 percent in 2008, with no compensation for anything.
Hon David Cunliffe Link to this
Can the Minister explain to New Zealanders who will face increasing mortgage payments why the economy is strong enough to raise interest rates but not to lift their wages and salaries as fast as Australia’s, when that was his Government’s No. 1 promise to New Zealanders?
That is a question that the member should direct to the Governor of the Reserve Bank. I am surprised that he did not know that that is who sets the overnight cash rate.
Aaron GilmoreIn the years up to 2008 inflation was regularly above 3 percent, and it peaked at 5.1 percent in the year to September 2008. No one got compensation for that. I will also point out that although the official cash rate today has gone to 3 percent, it peaked in 2008 at 8.25 percent, and first mortgage and floating mortgage rates were almost 11 percent. That was on the back of electricity price increases of 72 percent in the 9 years to 2008. So if anyone knows about inflation, it is the Labour members, and they know how to push it up.
Hon David Cunliffe Link to this
It is a shame that the Minister did not major in economics, rather than history. Given today’s increase in the official cash rate, together with a fall in business and consumer confidence and concern from the Reserve Bank governor and economists, which is true: that the recovery is “aggressive”, as John Key has said, or “bumpy”, as the Minister has just told the House?
I think the consensus view is pretty much as I said earlier on. In an economy that is trying to deleverage and reduce debt, and in a world that is trying to reduce debt, New Zealand is going through a fairly orderly transition to a world where we live within our means. We have been able to do that with relatively respectable growth, as the Governor of the Reserve Bank has said, of 3 percent, and with unemployment now down to around 7.5 percent. We hope, of course, to make faster progress than that if possible.