3. PESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this
to the Minister of Finance
What are the consequences of unsustainable increases in public spending that lead to budget deficits getting out of control?
Hon BILL ENGLISH (Minister of Finance) Link to this
Countries that allow their deficits to get out of control can end up in considerable difficulty. For instance, I have seen reports overnight that Britain is being forced to make the largest cuts to public spending since World War II, in a 5-year austerity plan that could cost nearly half a million jobs. Governments that let deficits get out of control find themselves in a position where they have to make drastic decisions rather than considered decisions.
Hon Trevor Mallard Link to this
I raise a point of order, Mr Speaker. I think that sometimes members have a vague crack at hitting ministerial responsibility, in supplementary questions. I do not think that that one did. [ Interruption]
Mr SPEAKERI am on my feet and I am dealing with a point of order. The honourable member makes a perfectly valid point that the Minister has no responsibility for the world economy. However, I took the question to be asking the Minister’s opinion. Ministers’ opinions can be sought on a range of matters, so I have interpreted the question on that basis. On that basis I have allowed it, but I fully accept the point made.
Hon David Cunliffe Link to this
I raise a point of order, Mr Speaker. I ask you respectfully to reconsider your ruling. It was only a day or two ago that the Minister was taking credit for achieving lower inflation, which of course was a direct result of the crisis in the world economy, so he must—
The member will resume his seat. The member will remember that one rule I insist on absolutely is that when I get to my feet members will resume their seat. That point of order was definitely not a point of order, unlike his colleague’s, which I think had some merit. I ask the Minister to answer the question in so far as it seeks an opinion.
The world economy is certainly not performing well enough that Governments can afford to relax fiscal constraint. For instance, looking back at Britain, where that Government is making drastic cuts, public sector expenditure jumped by 40 percent over the 5 years up to 2010. By way of comparison, Government spending in New Zealand jumped by 50 percent. That is, public spending in New Zealand was growing faster than in the UK. That is why it is vital that the Government sticks to its policy of fiscal constraint and cleaning up the damage done to our public services by the previous Labour Government.
Peseta Sam Lotu-Iiga Link to this
What feedback did he receive on New Zealand’s economic performance?
Among the feedback I received was approval for New Zealand’s fiscal constraint. International credit agencies, for instance, understand that if we allowed our Government expenditure to continue at the rate it increased under the previous Labour Government, we would end up in a position where we would have to make cuts as drastic as those being made in the UK. This Government has got hold of public finances, and if we manage well we will be able to avoid drastic cuts such as those being made in the UK.
Hon David Cunliffe Link to this
What are the consequences for the Budget deficit of a deteriorating recovery described by Reserve Bank Governor, Alan Bollard, yesterday as “fragile” rather than the Prime Minister’s “aggressive”; if he knew that the deficit was growing, why did he continue with upper-income tax cuts that he knew New Zealand could not afford?
There are a couple of points. As the member knows, the tax package was broadly fiscally neutral—that is, income tax cuts were paid for by increases in GST and property tax, and increased taxes on foreign owners of New Zealand assets. So the member’s assertion is simply wrong.
Hon David Cunliffe Link to this
Can the Minister confirm that the previous Labour-led Government cut net debt to zero, and at the same time halved gross debt and pre-funded New Zealand superannuation, leaving New Zealand, to quote him, in a “reasonable position in dealing with the uncertainty of our economic outlook.”?
As I said in answer to an earlier question, New Zealand Government debt levels by September 2008 were at relatively low levels, and that has meant the Government is in a better position to deal with the recession. That simply underlines the need for very careful management to stop our debt rising beyond control, and getting public spending under control. If New Zealand followed the policies Labour is currently advocating, then we would end up with very high levels of debt, reckless public spending, more unemployment, and a weak economy.