7. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
Does he agree with the Prime Minister’s statement: “New Zealand’s government debt as a percentage of GDP relative to the other countries is low, in other words we don’t owe very much”?
Hon BILL ENGLISH (Minister of Finance) Link to this
Yes, of course I agree with the Prime Minister. Net core Crown debt is relatively low by the standards of many other countries, but what matters is that over the next few years that debt will rise sharply, and it would rise even more sharply if we did what Labour said. Secondly, the Government has now become the driver of the growth in our debt to foreigners, and our total public and private debt to foreigners is the highest in the world. We are already borrowing $300 million per week and borrowing more than that would be totally irresponsible.
Hon David Cunliffe Link to this
If the Minister inherited Government books that were in surplus, if New Zealand’s Government debt is now relatively low, and if private debt is very high, why is he not focused on reducing private debt instead of privatising State-owned enterprises, ultimately to foreign buyers, which will make it worse?
The Government is focusing on reducing both. New Zealand’s total indebtedness to the world is up there with Portugal, Ireland, Greece, and Spain at about 85 percent of GDP. New Zealand households have started to reduce their borrowing. They are being careful with their spending, and are not rushing back to the housing market. The New Zealand Government needs to make the same effort as New Zealand households are making.
Aaron GilmoreWhat measures of New Zealand’s indebtedness are of most concern to overseas lenders, and how do we compare with other countries?
There are a number of ways of measuring our total indebtedness, but the one that gets used by those who lend to us—that is, the people who lend us $300 million a week so we can pay for Working for Families, and so we can keep our schools going and maintain our police—measures total indebtedness as a proportion of GDP. New Zealand’s is 85 percent, along with Spain, Greece, Ireland, and Portugal, which makes us among the highest in the world. A better level would be somewhere around 60 percent of GDP, which is about where Australia is, and internationally regarded as low risk.
Hon David Cunliffe Link to this
Given that 90 percent of that total debt is private debt, why is he, according to Professor Bowden of Victoria University, “spin doctoring” public debt as a pretext for privatisation and savage budget cuts instead of fixing the underlying private debt problem?
Last year when we put up a Budget to increase taxes on consumption and on investment housing, which was designed to reduce demand for private debt, Labour voted against it. The previous question just illustrates that Labour members believe—alone in New Zealand—that the Government should go out and borrow as much as it possibly can, give it to anyone who wants it, and that that amounts to responsible economic management. I invite them to keep arguing that through the election year.
The forecasts at that time were not that flash. Forecasts showed net debt jumping to 26 percent of GDP, as well as a decade of deficits. By December 2008, the forecasts were for net debt to soar to 50 percent of GDP by 2023, to never fall, and to show permanent Government deficits. So the impact of Labour’s bad policy and the global recession meant that at that stage our debt could have spiralled out of control. Fortunately, we got it under control.
Hon David Cunliffe Link to this
Can the Minister name any other OECD country that appears to be headed for a double-dip recession; if not, what is so special about his economic management?
I would suggest Australia. Recent figures out of Australia show that that economy has to make the same adjustments as the New Zealand economy. There are very high levels of household debt. Australians have decided that they cannot get wealthy by buying houses off each other, and their consumer and housing markets are slowing down quite significantly.