2. JOHN HAYES (National—Wairarapa) Link to this
to the Minister of Finance
What recent reports has he received on the economy?
Hon BILL ENGLISH (Minister of Finance) Link to this
I have received reports showing that the economy is in better shape than it was 2 years ago. The economy has grown for five consecutive quarters, following an extended recession that began in early 2008, well before the global financial crisis. The 1.7 percent economic growth in the last 9 months exceeds the 1 percent growth posted over the entire 4 years up to the beginning of 2010. I have also seen reports that households and businesses are moving away from excessive spending and borrowing, which were features of our lopsided economy in the past decade. Instead, they are paying down debt and being careful with their spending. This change is welcome, but it is happening faster than we expected.
The economy needs to rebalance from an excessive reliance on Government spending on borrowing and housing, towards exports and investment and savings. That is what the tax package is designed to do, to push in the direction that people are already going. The increase in GST will discourage excessive consumption, the increase in the effective tax rate on property will in effect discourage speculative investment in property, and the reduction in income tax reduces the tax on savings, jobs, exports, and investment.
Hon David Cunliffe Link to this
Has he received reports that the price of fruit and vegetables has gone up, and although the increase of 2.6 percent in September may be down to winter, the further price increases since then are all because of National’s increase in GST, inflicting greater costs on hard-working Kiwis who are struggling to make ends meet?
The member may care to take note of the Governor of the Reserve Bank’s comments from the annual report yesterday. He said that the inflation risk from GST is, as he describes it, muted so far.
Well, it is a very competitive market out there and retailers have to be careful about putting their prices up. However, people are guaranteed to get their income tax cut. When they look at their after-tax pay over the next few weeks, they will realise just how far $4 billion of income tax goes. In respect of vegetables—and there are 17 of them in the Labour caucus—in the 2 years to September 2008 they went up 21 percent under Labour. In the 2 years to September 2010 they went down 6 percent.
What other contributions is the Government making to helping New Zealanders through this adjustment and setting the economy on a faster growth path?
I think the most significant contribution the Government is making is to absorb the shock of this recession on the Government’s books. This fiscal year the Government will run a cash deficit of $13 billion—that is, the Government is borrowing $13 billion over the next 12 months to continue with an infrastructure investment programme to maintain transfers and to ensure that Government services remain in place at a time of stress. This is supporting New Zealanders through the adjustment process, but it cannot last for ever and the Government will have to tighten up on its spending in order to bring those deficits back to a surplus.
What economic policies would damage New Zealand’s economic prospects and leave the vast majority of Kiwis worse off?
The policies that will do that are policies that create more borrowing, larger deficits, more Government debt, and higher cost of living increases. They are also policies that repeat the mistakes of the last Labour Government when it reduced the incentive to work and to save and to invest. I understand that Labour will be announcing details of policies going in that direction this week—
Hon Darren Hughes Link to this
I raise a point of order, Mr Speaker. I have been listening to the answer the Minister is giving. He is not responsible for policies that are being developed by the Opposition, no matter how frightened he might be by them.
Mr SPEAKER