6. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
Does he consider the high New Zealand dollar is contributing to “rebalancing” the New Zealand economy; if so, how?
Hon BILL ENGLISH (Minister of Finance) Link to this
It is arguable as to whether the New Zealand dollar generally is high. It is high against the US dollar, but not against all currencies. The economy has been rebalancing towards savings and exports, as it needs to. As governor Bollard noted this morning, if a high currency is continued, then rebalancing towards the tradable sector would be more difficult to achieve. Although the dollar is highest against those countries that are experiencing the weakest growth, the exchange rate with Australia is close to its lowest level in 15 years. Australia is our largest trading partner, and that represents a major boost for New Zealand manufacturers. Overall, on a trade-weighted basis, the currency is today very close to its average for the past 5 years and is 10 percent below its recent peak in July 2007.
Hon David Cunliffe Link to this
In respect of the comparison with Australia, does he then agree with the Reserve Bank’s Financial Stability Report, page 11, which states: “Against the Australian dollar, the NZD has fallen significantly, as diverging economic data point to a widening growth gap between the two countries.”; if so, does he still maintain that his Government is closing that gap and that the markets and the Reserve Bank are therefore all wrong?
We have only to look back over recent years to see that there has been a diverging growth path. That has been a consequence of two things: first, the huge lift in prices for Australian resource exports; the other has been the dreadful economic policy that this country pursued for the last 10 years. We are in the process of changing that, and it will take some time for the gap to close.
Craig FossThe so-called high dollar is not a phenomenon of just the last month or two. New Zealand experienced sustained overvaluation between 2003 and 2008. In fact over that 5-year period the average level of the real exchange rate was the highest since the 1960s. That was driven by the irresponsible economic policy of the time, such as rampant Government spending, which contributed to the Reserve Bank lifting the overnight cash rate to 8.25 percent. It is currently 3 percent. The consequences were disastrous, in particular for our export sector, which went into a 5-year recession.
Mr SPEAKERThe Minister knows exactly what he is doing. We have just had an exchange over this earlier in question time. A question from a colleague asked about the pattern of the trade-weighted index exchange rate over a certain number of years. The Minister then went into a whole further exposition over whose fault it all was, and that was not the subject of the question asked. What is more, in my view it is not appropriate for questions from one’s own colleagues to be used to dump on any other party. The other party has asked plenty of questions and some of them invite being dumped upon, but Ministers should not use questions from their own colleagues for that purpose.
I raise a point of order, Mr Speaker. I just make two points. First of all, the question asked what had been the path and why, so I was asked why. Secondly, if we are going to get into this territory of deciding what can be said, then you, as Speaker, will have to be able to determine between facts and political assertions. There is a set of facts in this case about why the exchange rate is high. I do not think the House should be prevented from hearing those facts because in someone’s opinion they might sound political—
I am not sure what level of education one needs to understand the difference between “disastrous”—or an emotive term to describe an administration by another Government—and facts. In my view, and forgive me if I am wrong, where one uses an emotive term to describe something—such as “disastrous management”, or that kind of thing—that is hardly a fact. It certainly is a legitimate view that some people might have, but it is not difficult to discern, in this House, when questions are politically loaded and when they are not. All I am asking of Ministers is to show a little more discretion and to not use colleagues’ questions to excessively dump on other parties. I did not pull the Minister up initially; it is just that the Minister started to go on and on about it. All I am asking for is a little reasonableness in answers, otherwise the Opposition will start to become more and more disorderly, the place will become more and more disorderly, and the public will suffer because they do not actually hear the facts that the Minister is referring to. I have no problem with the Minister referring to facts, so long as they are facts from the record. My concern is where emotive language is used to describe what has gone on previously, because those are not facts.
The New Zealand economy needs to rebalance because it has been spending more than it has earned, particularly over the last 10 years, and we now owe the rest of the world $170 billion. There are some early signs of success now, because New Zealanders are restraining their spending, increasing their savings, and paying off debt. At the same time, the export sector has started to get some momentum, after 5 years of recession.
Hon David Cunliffe Link to this
In light of his ongoing concern about the level of the trade-weighted index, does he agree with Dr Bollard, who said at the Finance and Expenditure Committee this morning that our dollar is currently overvalued, or with the Prime Minister, who said yesterday that he expects our dollar to go above US80c?
Of course both of them can be right: it can be overvalued now but still be likely to go higher. In the light of US policy and the weakness in that economy, and UK policy and the weakness in that economy, there is every probability that the dollar could continue to go higher, even though it is overvalued.
Hon David Cunliffe Link to this
If the Minister is arguing that the dollar is both overvalued and could go higher, who then is right: the Prime Minister, who says there is nothing that can be done about the high New Zealand dollar, or the Governor of the Reserve Bank, who told the Finance and Expenditure Committee today that if currency appreciation continues, he would consider tactical intervention in the foreseeable future if the appropriate tests were met?
That is the proper role of the Reserve Bank. There can be a discussion over whether interventions work. The Reserve Bank Governor has a role, and I am sure he will execute it independently of the Government. The Prime Minister has been responding to calls from people who think that the exchange rate can be fixed at a level that suits us, and that is simply not the case.
Hon David Cunliffe Link to this
Does he then consider Dr Bollard correct in saying this morning that the continued rebalancing of economic activities towards the tradable sector is difficult to achieve with a high New Zealand dollar; if so, what action will his Government take to relieve pressure on struggling exporters and savers?
The Government is taking a whole series of actions that will assist with that rebalancing. It needs to deal with domestic cost structure so that our exporters can be competitive. It needs to persist with free-trade agreements, because, as the experience with China shows, even if the currency is against us we can increase our trade. And it needs to get the non-tradable sector back under control after many years of reckless growth under the previous Government.