4. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
How much of the cumulative $15 billion drop in GDP over the next 4 years, as identified in the Treasury’s February monthly economic indicators report, is a result of the “weaker [economic] outlook we were seeing prior to the February earthquake” in Christchurch?
Hon BILL ENGLISH (Minister of Finance) Link to this
The member will find that outlined in Treasury’s monthly Economic Indicators report for February, which was published early so that people can have good information. It notes that of the $15 billion drop in GDP over the next 4 years, about $10 billion of it relates to changes that occurred before the February earthquake. Just to clarify the expected growth path of GDP over the next 5 years, the growth will be in excess of $1,000 billion and is expected to grow about 13 percent in real terms. The pre-quake revisions lower the cumulative projections by about 1 percent. So there was an expectation of 13 percent growth in real terms, but that growth is now expected to be about 1 percent less.
Hon David Cunliffe Link to this
Did Treasury indicate prior to the February earthquake whether unemployment for the next 2 years would be higher or lower than predicted in December 2010’s Half Year Economic and Fiscal Update?
No, it did not, although in the absence of the earthquake it is likely that its employment forecast would have softened a bit. Treasury had just started its forecast round for the Budget when the earthquake hit. So, clearly, from here on both the original slow-down in the economy and the impact of the earthquake will affect employment. We would expect unemployment to be a bit higher in the short term, but in the longer term, as has been discussed in the House today, we are likely to have skills shortages by the middle of next year, which is a good sign for employment.
Hon David Cunliffe Link to this
Given that it was a priority for his Government to reduce public debt even at the cost of reducing services to New Zealanders, is he prepared to consider rolling back some of the tax cuts to high-income earners in order to spread the cost of the recent earthquake over time, or does he now consider it appropriate to borrow the lot and add it all to New Zealand’s international debt?
We expect to spread the cost of the earthquake over future years. As I have outlined, there is not a lot of choice about taking on further debt. The earthquake has happened, and the Government has already in the last couple of weeks spent about $200 million to $250 million, because we believe in giving Canterbury and the people of Christchurch all the support they need. As I have outlined, we are going through a pretty considered process of how we can haul back the extra burden of debt that we are taking on in the short term.
Craig FossThe effect of the earthquake will come in a couple of phases. In the first instance it will be negative from the point of view of the Government’s books and its effect on our fiscal position. But when we look out over the future, we see that the expected rebound will be sizable. Our preliminary forecasts show total investment spending lifting by over 40 percent and residential investment by over 80 percent over the next 4 years. The size of the disaster will have to be matched by the size of the reconstruction effort. The combination means that next year we are likely to see growth rates lift above 4 percent on average across the economy, and that will be positive for employment.
Hon David Cunliffe Link to this
Further to my previous supplementary question, and leaving aside any possible change to the Earthquake Commission levy, is the Minister prepared to rule out for the House any change to tax rate levels or thresholds, or rule out a specific earthquake levy as part of the balanced consideration he is giving to spreading the costs of earthquake recovery over time?
In the couple of weeks since this disaster the Government’s position has been pretty consistent: we are not ruling out a levy or equivalent measures. But it is our strong preference not to reverse the direction we have taken, which has been to improve incentives in the economy for savings, exports, and investment. Those measures will, in the long run, help us with stronger economic growth. We would prefer not to do that if we can avoid it.
Hon David Cunliffe Link to this
Given that answer, is he alternatively considering reducing entitlements under Working for Families—for example, those of a two-income family with three children where both partners work and earn a combined income of around $80,000 per annum?
In respect of Working for Families, there was some discussion about it last week. The Government has indicated that it has not ruled out changes for higher-income earning families. Certainly, at this time—when people, particularly in Canterbury, are dealing with uncertainty—we will stick to our principle of protecting low-income earners.
Hon David Cunliffe Link to this
I raise a point of order, Mr Speaker. I think you will agree that it was a pretty straight question and it gave a specific and straight example of a two-earner family earning $80,000. The Minister replied that they were thinking of reversing Working for Families entitlements—
Mr SPEAKERThe member is rehearsing the entire question. In answering the question the Minister indicated that the Government has made no particular decision on the matter. How can he be more specific in respect of that specific example if the Government has not made specific decisions on it? That was my understanding of the Minister’s answer.
Hon David Cunliffe Link to this
I raise a point of order, Mr Speaker. I apologise; if I had a further supplementary question I would use it to perhaps work my way to the same clarification. I submit that within the ambit of a perfectly straight question is the question of whether a combined income of $80,000 qualifies—
The member will resume his seat; he is trying to relitigate the issue. I listened to the answer carefully. The Minister indicated that there had been discussions on the matter but that no decisions had been made, except—if I remember his answer correctly—that low-income families will be protected. The member cannot expect more of an answer if no final decisions have been made on the matter. The Minister cannot address the detail of that particular question.
Hon David Cunliffe Link to this
I seek leave to table Treasury’s February Economic Indicators report, which indicates that—