2. AMY ADAMS (National—Selwyn) Link to this
to the Minister of Finance
What international reports has he received on the economy?
Hon BILL ENGLISH (Minister of Finance) Link to this
In recent weeks I have been able to speak to all three credit-rating agencies. At present, New Zealand’s long-term debt is rated triple A by Moody’s, AA+ by Standard and Poor’s, and AA+ with negative watch by Fitch Ratings. I am pleased to be able to tell the House that these high credit ratings appear secure. All three ratings agencies note that the Government has a sound medium-term plan. They are also encouraged by the recent lift in national savings and the reduction in New Zealand’s actual and forecast balance of payments position.
The performance of the world economy matters because New Zealand is a small, open economy; it is essentially like a cork bobbing on the ocean. Although the world economy has been recovering over the past year, growth slowed in most Western countries during the middle part of this year. This combination of relatively weak growth is placing severe pressure on Government Budgets. The average deficit is expected to be around 9 percent of GDP in developed economies—New Zealand’s is around 6 percent of GDP—and debt levels are rising rapidly. Fortunately, the markets into which we sell our products, increasingly in the Asia-Pacific area, are growing stronger.
By comparison with any number of countries that are experiencing considerable difficulties, the feedback was generally favourable. We have found that those who lend money to us and the credit rating agencies are particularly impressed with the tax switch, which has allowed us to change the incentives in the economy by reducing income taxes and the company tax rate so that we can encourage savings, investment, and new jobs. That is generally opposite to the general trend, where a number of countries are looking to lift personal tax rates.
Hon David Cunliffe Link to this
In light of these reports, who is correct: the Prime Minister, who described New Zealand’s economic recovery as “aggressive”, or Reserve Bank governor Bollard, who described it in the Finance and Expenditure Committee today as “fragile”?
As the member will be well aware, the Prime Minister was describing the movement of the economy from the bottom of the recession, where there was aggressive recovery. The Governor of the Reserve Bank was describing what has been happening at the moment, which is that growth has flattened because New Zealanders have reversed their appetite for debt built up under the previous Government and are now saving at a very rapid rate. As the member will know if he wants to encourage savings, if one saves it, one cannot spend it.
Hon David Cunliffe Link to this
Has the Minister seen a report from the International Monetary Fund warning against Western Governments withdrawing stimulus before 2011, and another report from the International Monetary Fund and the International Labour Organization that concluded that growing inequality between the many low and middle income earners and the few high-income earners, such as delivered in his tax package, could hold back recovery with a fall in disposable income leading to a fall in demand?
What has affected low and middle income earners in New Zealand has been the legacy of bad economic management. They went massively into debt—
Mr SPEAKERThe question asked whether the Minister of Finance was aware of a couple of reports. The Minister did not even attempt to indicate to the House whether he was aware of those reports. He went straight into telling the House what he wanted to tell it. This is question time; the general debate comes after question time. The Minister is perfectly at liberty in the general debate to say what he wants, but in question time he will answer the question.
I raise a point of order, Mr Speaker. It has been the habit in this House, and a precedent has been established by previous Speakers, that if several questions are asked, then the answerer gets the choice of which questions they answer. The member also raised the issue of the impact of the recession on low and middle income New Zealanders and I chose to answer that question. [ Interruption]
No, we do not need to take further time on that. I accept the point that the Minister has made. It is not totally unreasonable. Therefore, I think the Minister’s point is not unreasonable. However, having said that, I think it would not have been difficult to indicate whether he had seen reports and then gone on to make the point he wanted to make. I invite the Minister to continue.
I have seen those reports and I have to say the Government’s policy fits pretty neatly with them. In this fiscal year of 2010-11, the Government is running a $13 billion deficit. No Government before has offered as much support to the economy. That is $13 billion we are borrowing and pumping into the economy for investment in infrastructure and public services. Our fiscal stimulus policy is working very well.
Hon David Cunliffe Link to this
I seek leave to table a covering report from the International Monetary Fund entitled “IMF fears ‘social explosion’ from world jobs crisis”, dated 13 September 2010.
Hon David Cunliffe Link to this
I seek leave to table the opening address by the managing director of the International Monetary Fund to the 2010 annual meetings of the Board of Governors of the World Bank where he warns against withdrawal of fiscal stimulus before 2011.
The implications of uncertainty in the global economy are that the Government should stick to its longer-term plan to lift the productivity and strength of this economy. In particular we need to focus on the public sector. There are severe pressures on public sectors around the world and we will see evidence of that in the UK in the next couple of days. The Government has borrowed $13 billion this year to help maintain public services. That makes the stance of groups such as the secondary teachers a bit difficult to understand. That group had enjoyed 3 previous years of 4 percent wage increases—4 percent in each of the last 3 years—with high job security. It is hard to believe that they do not understand that something has changed since their deal 3 years ago—that is, a global financial crisis, a significant recession in New Zealand, and very large Budget deficits. But something has changed and the Government has no more money for secondary teachers.