2. SIMON BRIDGES (National—Tauranga) Link to this
to the Minister of Finance
How did Budget 2011 continue the Government’s programme to build faster growth, higher incomes and more jobs?
Hon BILL ENGLISH (Minister of Finance) Link to this
It did that by specifically continuing a heavy investment in productive infrastructure, continuing to grow investment in research and development and innovation, providing opportunities for greater savings from New Zealanders—to which they are responding positively—and setting a credible path back to surplus, so that we can have sound Government finances and, at the same time, protect the vulnerable at all stages.
Following the Budget, what reasons are there to be optimistic about the economy’s prospects over the next few years?
Just more good news. I have seen a number of reports that show the economy is making good progress. Specifically, I heard some statements this morning from the chief executive of Westpac bank, Gail Kelly, pointing out the difference between the positive approach to the future in New Zealand and the increasing negativity in Australia. Despite the challenges of the earthquakes, we have had the highest terms of trade since 1974, the lowest interest rates in 45 years, and 40,000 new jobs created in the last year, and we are becoming increasingly competitive, particularly with Australia, through a favourable exchange rate.
Well, another reason is that average after-tax wages continue to rise faster than prices. Although everyone’s circumstances are different and there are many challenges for New Zealand families, after-tax wages grew by 7.1 percent in nominal terms, and by 2.5 percent in real terms, in the year ended March 2011.
John BoscawenHow much higher would growth, incomes, and job levels be if Government spending, as a proportion of GDP, had been capped at 29 percent, as it was under Labour in 2004, and as it was recommended to be by the 2025 Taskforce?
I think it is likely that the New Zealand economy would have performed better and we could have had higher incomes if there had not been a splurge in Government expenditure from about 2005 onwards, which was then compounded by the effects of the New Zealand recession and the global recession. However, that is the past. We are getting Government finances back in order and putting in place a programme to help to lift incomes across the board.
Hon David ParkerDoes the projection in his Budget with regard to New Zealand’s net investment position—that is, New Zealand’s total debt to the world, less our assets overseas; the measure he until recently said was the most important one—show New Zealand is projected to get more indebted each year, from negative 78.6 percent of GDP this year to negative 85.3 percent of GDP in 2015?
Yes, the projections show that—with two qualifications. One is that all measures of New Zealand’s external transactions will be affected by the very large insurance flows coming into New Zealand. Secondly, there are differences of opinion about whether New Zealanders will go back to their old habits of spending more than they earn and borrowing to cover the difference. I am optimistic. I do not believe that New Zealanders will go back to the way that they were behaving in the last 10 years.
Can the Minister confirm what he said in his last answer: that reinsurance proceeds are not already shown in those figures?
I made the general comment that insurance flows will affect all our external measures of financial transactions, including, for instance, the current account deficit, which for the first time in 30 years will have a surplus—apparently. That is mainly because of the insurance inflows, but we do not expect that to last.
Is the lack of credibility of his Budget projections, which are premised on asset sales he has no mandate for, service cuts he cannot name, and rosy growth forecasts he has failed to deliver on in the past, the reason why Standard and Poor’s has his Government’s credit rating on negative outlook?
No, that is not true. We have made some balanced judgments about the future, and they are a lot more credible than Labour’s promises in Te Tai Tokerau to lift incomes, spend billions, and give people more jobs, when it has no way of doing that.
Why did he continue with the splurge in Government spending that he has just referred to in his first 2 years as Minister of Finance and take until now, in his third Budget, to make minor changes to the interest-free student loans and the massive incentives for KiwiSaver?
Because this is a careful, considered, and balanced Government. On the one hand we have advice from the ACT Party to rip into Government spending, regardless of the consequences for people. On the other hand Labour wants to spend a whole lot of money that New Zealand simply does not have. The Government is taking a balanced position of protecting the vulnerable, supporting the economy in a recession, but being fiscally responsible.
This is an interesting question, because when we hear concerns expressed about the cost of living the answer to those, of course, is to achieve higher incomes. But there has to be some kind of plan to assist the growth of incomes. The Government has focused on doing everything it can to provide the confidence that will stimulate investment and employment in the private sector, so that it will create more jobs and have the ability to pay more. I could go through a long list of the steps the Government has taken, but that is our response—a constructive response to the pressures of the cost of living.
Dr Russel NormanDoes the Minister agree that a knowledge-based economy is one of the foundations for higher incomes in New Zealand; and hence, how does it make sense that the Government cut the spending on research and development in the last Budget?
We did not, and we would be happy to take the member through what has happened with regard to increases in research and development spending. In each of the previous two Budgets we lifted the spending on research and development, and in this Budget it has continued to go up, even though we did not appropriate more money. But as the member will know, we focus more on getting value for the money that we are spending, not just on the total amount of money, because that is not a measure of anything in particular.
Is it not the case that other OECD countries that are doing better than us in terms of producing high-income jobs have a higher proportion of Government spending on research and development than New Zealand does, and in fact that New Zealand is down at the bottom of the table for Government spending on research and development?
Some countries do spend more than us. I think it would be difficult to generalise these days that they are all “doing better”, because many OECD countries are loaded up with public debt and are in the middle of slashing public services, slashing pensions, and slashing what public servants are paid to try to get on top of their public debt. New Zealand is not in that position, because we have taken reasonable and balanced decisions. The member’s contention is arguable, and we would be happy to have the discussion with him.