3. DAVID BENNETT (National—Hamilton East) Link to this
to the Minister of Finance
What reports has he received on New Zealand’s economic position?
Hon BILL ENGLISH (Minister of Finance) Link to this
Today Statistics New Zealand published current account data for the March 2010 quarter. It shows a current account deficit for the year ended 31 March of $4.5 billion, which is around 2.4 percent of GDP. It is the lowest deficit in more than 20 years. However, the latest figure reflects a mix of permanent and temporary factors. It includes the benefits of recent high commodity prices, the revenues from major tax cases, and reductions in imports during the recession. Most forecasts show the deficit widening again, though not to the previous extreme levels of 9 or 10 percent of GDP. The data reinforced the need for New Zealand to tilt the economy towards savings, exports, and productive investment, and away from excessive borrowing, debt, and Government spending increases.
The current account deficit has become particularly bad through the last cycle, partly because of the mismanagement of the temporary boom of recent years. New Zealand’s external liabilities have risen almost 40 percent to $167 billion over the past 5 years. The cost of servicing this is more than 5 percent of GDP. At almost 90 percent of GDP, our external liabilities are similar to those of Spain, Ireland, Portugal, Hungary, and Greece, names the House might recall from recent media coverage. This is why the Government has placed such emphasis on financial stability. We have been successful up until now, but there is still plenty of work to do.
Hon David Cunliffe Link to this
Why is he attempting to take credit for the recent result, when J P Morgan has labelled the improvement as short-lived, and both Treasury and the Reserve Bank are forecasting the current account deficit to almost triple over the next few years?
I am not trying to take credit for it, and, actually, I pointed out in my answer to the primary question exactly that—that the forecasts are expected to get worse. What I have pointed out to the House, though, is that it is vital we turn round our external position, because under the mismanagement of the previous Government our external liabilities have now reached—[ Interruption] The member should listen. Our external liabilities are now 90 percent of GDP. Other countries with external liabilities at a similar level are Spain, Ireland, Portugal, Hungary, and Greece, each of which has featured significantly in the international media because of its substantial financial challenges.
To improve the current account, which, as the Opposition has pointed out, is forecast to get significantly worse again, the Government needs to raise exports and save more. The Budget was certainly focused on achieving this, with a new operating spending allowance of just $1.1 billion, which is about half the level of previous years. We have also set out to rebalance the tax system by increasing consumption taxes and taxes on property speculation, and reducing tax on income, savings, and productive investment. We should also acknowledge the success of some of the Reserve Bank measures in affecting the length of the term of the debt that New Zealand owes to the rest of the world.
Hon David Cunliffe Link to this
Given that both the Government and the Opposition are now agreed that the problem is expected to get worse, and that the need for rebalancing includes closing the savings gap, why did the Government cut in half the incentives for KiwiSaver and continue to defer indefinitely the pre-funding of New Zealand superannuation?
We have answered those questions before, and no doubt Labour will spend the next 10 years trying to justify its policies of the last 10 years. We did that because we had better ideas, and, actually, it was not difficult.
What alternative economic policies would aggravate New Zealand’s current account position and mortgage our families’ futures?
There are a different set of choices the Government could make. We could, for instance, increase personal income taxes. We could increase Government spending significantly faster. That would increase the need for borrowing. We could meddle with the Reserve Bank’s toolkit for containing inflation. These are all polices advocated by the Opposition. We disagree with them.