1. MICHAEL WOODHOUSE (National) Link to this
to the Minister of Finance
What signs of progress, if any, is he seeing of the economy rebalancing from borrowing and consumption to savings and exports?
Hon BILL ENGLISH (Minister of Finance) Link to this
There is no doubt that we are seeing some early signs of progress. First, we have had five consecutive quarters of growth in the past year and GDP has expanded by just under 2 percent. Secondly, growth is being reflected in a steady improvement in the jobs market, unemployment has fallen from a peak of 7.1 percent to 6.4 percent, and there are 40,000 more people in jobs today than there were a year ago. We expect the steady rise in new jobs to continue next year.
Mr SPEAKERBefore I call the honourable member, can I just ask members, please, to keep the conversations down a little. The background noise makes it very hard to hear.
First, growth is being driven by exports rather than debt-fuelled consumption or excessive Government spending. In the past year the value of New Zealand’s exports increased by 15 percent. Secondly, New Zealanders are choosing to pay down debt and increase their savings rather than borrow for consumption or housing speculation. It is encouraging that the recovery is being built on savings, investment, and exports rather than consumption, housing speculation, and wasteful Government spending.
Michael Woodhouse Link to this
What impact is that shift towards increased saving having on New Zealand’s economic and fiscal outlook?
Increased household saving will create a stronger platform for faster growth further down the track. However, it means that the recovery will not be driven by sectors like retail and housing. So there will be a flatter domestic economy in the short term. This trend, along with the weaker global outlook, is likely to mean a lower growth forecast for the year ending March 2011 in the half-year fiscal update before the economy rebounds further in the following year. Combined with the impacts of the Canterbury earthquake, it also means slightly higher deficits in the short term before the deficit starts improving.
Michael Woodhouse Link to this
What implications does the economic outlook have for Government spending decisions?
The Government has continued with a high level of spending to support the economy through the recession. In particular, a large-scale spend on infrastructure is supporting thousands of jobs around the country. But these figures remind us that there are risks in this recovery, because of the nature of the New Zealand recession and then the global recession that got Government finances in trouble, and we will have to reinforce consistent discipline for the next 5 or 6 years at least in order to get the Government’s books back to surplus.
Hon David ParkerWill next month’s half-year Economic and Fiscal Update from Treasury show higher than forecast economic growth for the year ending March 2011, or will he once again be forced to acknowledge that the economy is doing worse than he predicted just months ago?
It has been clear for some time now that the economic recovery has been a bit flatter over recent months, for the reasons that we have talked extensively about in the House. New Zealanders are paying off debt and saving more. That is good for the economy and good for them. But it does mean there is not the same flush of spending on housing and construction. I have to say that if there was a flush of spending on housing and construction, I would be concerned about it.
Hon Sir Roger Douglas Link to this
How does the Minister expect to increase savings and thereby help rebalance the economy when the real rate of return on bank deposits is currently less than 1 percent after allowing for tax and inflation?
It is difficult to encourage people to save considerably more if they are getting less than 1 percent real return on their savings. This is one of the issues that the Savings Working Group is dealing with. We need to take a view of national savings, not just Government or household savings. We need to look at, for instance, the interaction of the tax system with our savings instruments to see whether we can do better.
Has the Minister seen the Reserve Bank’s Financial Stability Report, which shows that business lending has fallen by $9.3 billion since November 2008, while housing lending is up by $8.8 billion, and does this not show that his measures to rebalance the economy are not working?
Given that the wage gap with Australia continues to grow, business lending is down, the Government deficit is up, and New Zealanders are more indebted than ever to the banks in the rest of the world, when will he admit, as Bernard Hickey said this week of the Government, that “The grand plan is in shreds.”?
I certainly disagree with Bernard Hickey, who, like that member, is too focused on month to month economic figures and not strongly enough focused on the long-term shifts that this economy needs to go through. In fact, that member should be apologising for squandering the best decade of economic growth that this country has seen.
Hon Sir Roger Douglas Link to this
What issues is the Minister taking into account in his consideration of the tax treatment of savings?
I apologise to the member, but because of the level of interjection across the front of the House I could not hear the member’s question. I ask him to repeat it, please.
Hon Sir Roger Douglas Link to this
What issues is the Minister taking into account in his consideration of the tax treatment of savings?
We are taking into account some arguments, which I do not necessarily agree with, that say that our tax system inherently favours debt over savings, and that that is one of the reasons that New Zealanders borrow more and save less. The solutions to that are all a bit messy. The Australians have looked at some solutions, and I understand that the Savings Working Group is considering those.