1. AARON GILMORE (National) Link to this
to the Minister of Finance
What does he believe will be the main features of the economic recovery under the Government’s programme to encourage more savings and investment?
Hon BILL ENGLISH (Minister of Finance) Link to this
I think it is now obvious that the economic conditions in the years leading up to 2008 were not normal, because we saw excessive consumption and housing speculation, and borrowing to finance both. Looking ahead, New Zealand’s economic growth will need to be considerably different from the growth that occurred during those years. It will need to be based on savings and investment and led by the earning side of our economy, especially the export sector. That is why the Government’s economic policy programme is designed to encourage savings, investment, exports, and new jobs.
Hon Trevor Mallard Link to this
I raise a point of order, Mr Speaker. It is a pretty simple one—that is, the question asked about the features of something that occurred before the Minister was responsible. He was not asked about any reports he had; he was asked about something that he has no responsibility for.
Mr SPEAKERWith respect, the Minister of Finance does have a reporting responsibility on what the features were. He should not pass too much comment on them, but he definitely has a reporting responsibility on what the features were.
Hon Trevor Mallard Link to this
I raise a point of order, Mr Speaker. If in fact he had been asked that, I would not have taken a point of order, but he was not.
I believe the Minister was asked what the features were of—[ Interruption] He has a reporting responsibility on the economy prior to his time as the Minister of Finance, but he should not be passing too much judgment on the policies of the time. He certainly does have a reporting responsibility on the features of the economy.
I did not plan to pass any judgment. In retrospect, it is clear that the 5 years to March 2008 were an unusual period. The growth in private consumption was about 4.5 percent a year, which is almost twice its long-run average. House prices doubled, and credit—that is, mortgages, credit cards, and other forms of credit—grew by 83 percent in the 5 years to 2008. By the end of that period, households were borrowing $10 billion a year to finance consumption, and we had record balance of payment deficits.
Since 2008, fortunately, those trends have reversed. Households have become strongly averse to debt. They have lifted their savings and are trying to restore their balance sheets. The housing market and credit demand have stalled; in fact, credit growth is close to zero. The banks realise that they were overextended with too much foreign borrowing, and the balance of payments has dramatically improved. The policy challenge now is to lock in the long-term benefits of this sharp correction.
Hon David Cunliffe Link to this
If households have lifted their savings, why is the New Zealand Institute of Economic Research forecasting national savings to collapse to minus 1.2 percent in 2015, compared with a positive 5.2 percent in 2004?
I have no idea why the New Zealand Institute of Economic Research is forecasting that. The forecasting is, I think, a bit of a mystery even to the forecasters who are doing it. What is pretty clear is that New Zealanders are saving more now and not spending. That is one of the reasons that the economic recovery is a bit flatter than was expected, but that is a good thing. New Zealand needs to have more savings.
Te Ururoa Flavell Link to this
Has the Minister seen mention in the report of the Welfare Working Group of a recent review of social services in Masterton that found that many Pākehā preferred Māori-provided services because they offer a more family-based approach, and will he respond to this finding by seeking to encourage more investment and subsequent long-term savings in the Whānau Ora approach?
We are a Government that prefers people, including those who use social services, to be able to exercise some kind of choice. I am interested to hear that in Masterton, a number of Pākehā families prefer Māori providers because they do a better job. It may well be that as many Māori families prefer non-Māori providers because they believe the same thing. Either way, we want to foster that kind of choice, and, of course, the development of Whānau Ora means there will be considerably more choice for families in need of social support. That is a good thing.
Hon David Cunliffe Link to this
Can he confirm that Standard and Poor’s projects that the current account deficit will grow to an average of 5.9 percent over the next 3 years, and that Treasury forecasts it to rise to 7.3 percent in 2014; and does he share Standard and Poor’s disappointment that his policies have failed to make any structural difference to this situation?
No, I do not share those points of view. There has been a considerable change since the record current account deficits that the previous Government left behind, and that change is driven largely by changes in the behaviour of New Zealand households, which are saving more and spending less. The Government’s tax package is designed to push in the same direction and lock in long term the benefits of those changes in behaviour, and that policy has been effectively endorsed by voters at the recent Mana by-election.
We can expect that the economy will grow by about 2.5 percent to 3 percent a year over the next 2 or 3 years. I believe we will see more savings. I think we will see much less growth in credit, and we will certainly see a much better-run Government and much better-run public services. The Government simply cannot afford to grow at the rapid rate that it did, and the new jobs are more likely to be in the export-orientated part of our economy, rather than jobs in other non-tradable sectors, such as domestic construction.
Hon David Cunliffe Link to this
With unemployment staying high at above 6 percent, with tax revenue down by $1.1 billion and business tax collapsing by 22 percent, with real wages falling and the gap with Australia widening, and with Standard and Poor’s now giving him a clear fail in the latest report, will he now admit that the so-called recovery is not happening and that his policies are not working; and will he hand over his portfolio to Steven Joyce, as everybody expects?