2. AMY ADAMS (National—Selwyn) Link to this
to the Minister of Finance
What lessons are there for the New Zealand economy on how sovereign governments around the world are managing their finances?
Hon BILL ENGLISH (Minister of Finance) Link to this
Many developed countries are working very hard to rein in their deficits that were created by a set of unusual economic conditions over the past decade and by different degrees of unwise spending increases. The European financial markets face possible disruption from the fact that Greece and Portugal have defaulted on debts in all but name, and other much larger economies such as Italy appear to be increasingly at risk. This is reflected by the fact that European sharemarkets fell 3 percent last night alone. The lesson for New Zealand is that very good, tight management of Government spending and Government deficits is important. The other lesson for New Zealand is that New Zealanders need to be encouraged to save so that our banks are less reliant on these overseas financial markets to finance economic activity in New Zealand.
The updated forecasts that the Government received in December 2008 were alarming. They showed a fiscal mess. Treasury projected perpetual deficits into the future, and Crown debt would have been about 50 percent of GDP in a decade’s time and climbing. The Government has worked very hard over the last three Budgets to get on top of the alarming deficits and ever-rising debt that we inherited, and over the next 6 months it may well matter if international financial markets are disrupted.
The Government has struck a reasonable balance between on the one hand continuing to fund activity in the economy during a recession, so that we can support jobs and public services, and protecting the most vulnerable from the sharp edges of the recession, but on the other hand vastly improving the quality of much wasteful Government expenditure. Now that the recession has receded, we are in a position to show a credible track back to surplus in 2014-15.
I think it is fair to say that the Government faces two risks. One is the ongoing risk of financial contagion in Europe, which could be disruptive in the financial markets from where the New Zealand Government and banks borrow money. The other risk would be a slow-down in China. I hope the country will not face the risk of a Labour Government because of the wreckage it left behind when it was kicked out of office in 2008.