4. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
Does he stand by the fiscal and economic forecasts in his Budget?
Hon BILL ENGLISH (Minister of Finance) Link to this
The member will be well aware that under the Public Finance Act the projections are prepared independently by Treasury. A statement of responsibility that best professional judgment has been used is signed off by the Secretary to the Treasury, who accepts overall responsibility for their integrity. This has been a longstanding practice and ensures that the projections are objective and independent. Normal forecast uncertainty, of course, applies to these forecasts as much as to any others.
Hon David Cunliffe Link to this
Does he agree with the acting Secretary to the Treasury, Gabriel Makhlouf, that the economic outlook has worsened since the Budget forecasts were finalised, and that “the risks are weighted to the downside for the forecast period as a whole.”, and can he think of another occasion upon which Budget forecasts have lasted only 2 weeks before being talked down by his own officials?
The member would have to ask the Treasury officials who served under the 9 years of the previous Government to see whether there was one of those occasions then. It is my understanding that Mr Makhlouf is referring to the unease and uncertainty, particularly in financial markets, as the European debt crisis gains momentum. The good news is that over the next 12 months New Zealand will be borrowing only about $5 billion net in international markets, instead of $20 billion. That means we are less exposed to those risks. So I do not agree completely with Mr Makhlouf.
Chris TremainMost forecasters regard the Treasury forecast as pretty much middle of the pack—that is, reasonable. They show the economy picking up steam with pretty moderate growth rates, actually: 2 percent over the next 12 months, and then 4 percent in the 12 months beyond that. Those are boosted by factors such as continuing low interest rates—the lowest in 40 years—and increasing focus of our exports towards Asia, where fast-growing markets are willing to pay more, for more of our products.
Hon David Cunliffe Link to this
Given that the Minister is busily distancing himself from Treasury forecasts, does he stand by the Treasury figures released to media that confirm that Government borrowing this year exceeds requirements by approximately $5 billion; if so, can he explain to the House why he told New Zealanders—why he told New Zealanders—that the “borrowing requirement” had increased from $300 million to $380 million per week?
Because that is what the New Zealand Government has been borrowing, on average, over the last 12 months. The original borrowing programme was for about $300 million a week, because two things happened together. One was the Christchurch earthquake, and the second was favourable conditions for borrowing at cheaper rates. New Zealand’s Debt Management Office took advantage of that. It borrowed about $5 billion more than was strictly necessary, and that means that over the next 12 months it will borrow about $5 billion less because it already has the money in the bank. Given the state of world financial markets, I think that that has turned out, in hindsight, to be a very smart move.
Hon David Cunliffe Link to this
Given that answer, who is running the economy—Mr Key, who said today that this additional borrowing would have no impact on the exchange rate; or the Minister himself, who said that it would, and who thus provided a further reason for reducing debt?
The member is not quoting correctly what was actually said. But I think that everyone, including him, agrees that if the Government is borrowing large amounts of money in offshore markets, such as $300 million, or $380 million, a week, to meet the deficit requirements of running our national superannuation scheme, paying for Working for Families, building schools, investing in infrastructure, and repairing Christchurch, then that could put some pressure on the exchange rate. The good news is that this Government is getting on top of that debt. We are turning it round over the next 4 years, and that will reduce the pressure on interest rates and the exchange rate.
John BoscawenGiven that Treasury forecasts have consistently overestimated annual GDP growth by 1.8 percent per annum, on average, since 2005, does the Government have a strategy, if growth is once again lower than its rosy forecast, other than a strategy of borrow and hope; if so, what is it?
The Government puts its Budget together in the full knowledge of the risks for economic growth—that is, that in any given Budget, growth could be higher or lower than the forecasts on which the Budget is based. If the circumstances changed significantly, then of course the Government might have to shift some of its policy settings—if they changed significantly. However, I think we have a pretty conservative, moderate base for the Budget. We have made some moderate but far-reaching decisions in the changes in Government expenditure, and it would take some quite significant external event to knock us off track.
Hon David Cunliffe Link to this
Given that the Minister is on top of the debt problem in the Budget, can he explain why Standard and Poor’s has kept New Zealand on a negative credit outlook?
Hon Gerry BrownleeActually, the member might be better off if he did not show up. The Government has put in place a number of decisions to reduce expenditure and to support economic growth. Like the ratings agencies, we would want to be sure that those things turned out 100 percent the way we wanted them to before we would get too excited about progress. This is a Government that consistently under-promises and over-delivers.
Given the Minister’s answer to my previous question, how conservative does he think is Treasury’s downside scenario or estimate, found on page 106 of the Budget Economic and Fiscal Update, of growth of 4 percent to the year ending 2013, and 3 percent to the year ending 2014?
Well, it depends a bit on the context. Generally, when New Zealand is coming out of recession we reach growth rates of from 5 percent to 7 percent per annum. That has been common after the last two or three recessions. So compared with those, these forecasts are moderate. I think the favourable factors are high export prices and the rebuild of Christchurch. The less favourable factors are the caution that New Zealanders have about spending in the shops, and their spending more on housing, which are usually big drivers of growth. So we think, on balance, these forecasts are reasonably moderate.
Mr SPEAKERIt is a chart prepared by ACT researchers showing that GDP growth in New Zealand has been 1.8 percent less than Treasury forecasts over the last 5 years.