1. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
Does he agree with Reserve Bank Governor Alan Bollard’s assessment that the economic recovery is proving to be “slow and fragile”?
Hon BILL ENGLISH (Minister of Finance) Link to this
Compared with previous recoveries, generally, yes. As Dr Bollard noted in the bank’s annual report, a different kind of recovery is to be expected when an economic recession, which began in early 2008, is followed by a global financial crisis. Despite this, he also states in the report: “We have now emerged from a long recession, and have experienced some quarters of significant growth.”
Hon David Cunliffe Link to this
Does this, therefore, prove that the Prime Minister’s prediction of an “aggressive” recovery, and the statement: “The recovery has been quite considerable.”, were, in fact, incorrect?
As the Prime Minister has said in response to probably half a dozen questions here in the House, the quote was from March 2009 and reflects the fact that there had been a 2.5 percent contraction in the economy in the previous year. Subsequent to that, the economy grew by 1.9 percent, which was a welcome increase in economic growth.
Amy AdamsAs Dr Bollard and others have pointed out, a major factor in the pace of the recovery is that New Zealanders have adjusted their spending and saving habits very quickly, and are now saving rather than spending. This is contributing to a much-needed rebalancing of the economy. However, in the short term, it does mean a slightly more subdued recovery. The Government’s 1 October tax changes support this much-needed rebalancing, by tilting incentives towards earning and saving and away from the housing speculation, rampant borrowing, and spending of the last decade.
Hon David Cunliffe Link to this
Was he therefore correct when he said that John Key’s prediction of an aggressive recovery was merely “aspirational” and that “I wouldn’t want to say he’s wrong but he’s setting a high hurdle here and it’s our job as a government to meet those expectations … a big focus there for the Government is replacing the jobs that have been lost”; if not, does he agree that unemployment numbers showing that job losses increased by over 500 each week since he has been in office point to a failure to meet those expectations?
I do agree with the expectations, and in respect of job losses, as was pointed out in the House last week, the number of people on the unemployment benefit currently is still less than it was for over half of the time that Labour was in office. As the member knows, when there is a significant recession, unemployment goes up. I am pleased to say the Government is playing its part by spending billions on infrastructure, which is underpinning the employment of thousands of skilled and unskilled people.
Hon David Cunliffe Link to this
Which aspect of the recovery has been aggressive—unemployment staying above 6 percent, compared with the 3.4 percent achieved under Labour; recent GDP growth of 0.2 percent, which is less than a quarter of the Reserve Bank’s prediction; declining business confidence; or housing prices that have continued to fall?
As I pointed out in answer to an earlier question, the economy did turn round aggressively from a sharp recession into economic growth, and now the recovery is somewhat qualified by the fact that, as I have pointed out a number of times, New Zealanders are saving much more strongly than perhaps some had anticipated. If we save a dollar, we cannot spend it. That is why things are a bit tough for retailers and the construction industry, but in the long run it is the right kind of adjustment—more saving, less borrowing; the opposite to that member’s policies.
Hon David Cunliffe Link to this
Does he agree with Governor Bollard’s concern expressed to the Finance and Expenditure Committee last week about the decline in business lending by the New Zealand banking system, and the thus dramatic decline in New Zealand manufacturing activity; if so, does he have a plan for dealing with either of those matters?
I do agree with the concern about the decline in business lending, and that of course is a product of a couple of things. One is the fact that New Zealanders are saving more and spending less. Therefore, retail and construction businesses will not have the demand for borrowing, simply because they do not see the opportunities for growth. In the long run, the Government has a wide-ranging economic programme designed to lift productivity and confidence, and we are confident that in time business investment will begin to flow. We will do everything we possibly can to encourage businesses to invest and employ.
What steps has the Government taken to pull the economy out of the recession that started in early 2008, and put it on the road to recovery?
In the short term, the Government has run substantial deficits in order to cushion New Zealanders from the effect of what has been a fairly sharp recession, to the extent that this year we will run a $13 billion deficit, supporting Government investment in infrastructure, and continuity of public services. We have also implemented significant tax reform, including increasing GST and reducing taxes on savings, on incomes, on exports, and on investments. I am pleased to say those tax cuts are being very well received.