4. GARETH HUGHES (Green) Link to this
to the Minister of Finance
What will be the impact of the recent fuel price rise on the New Zealand economy, including impacts on GDP, consumer spending, and the current account?
Hon BILL ENGLISH (Minister of Finance) Link to this
The impact on each of those amounts will be adverse, but it is too early to say by how much. The spike in oil prices has happened fairly quickly, with prices trending up since September last year. The rise in prices at the pump has been boosted by the recent weakness of the New Zealand dollar, although that weakness in the New Zealand dollar is generally beneficial to the economy. What happens from here depends on how long the lift in international prices is sustained.
Does he agree with analysts at Morgan Stanley, who say that sharp increases in global oil prices pose the biggest threat to the global economy and that the last five major recessions followed oil price shocks?
I think we are all concerned about the impact of a sharp rise in oil prices, in terms of both the pressure it could put on households and the way it takes more resources from our economy to keep petrol and diesel running. However, we are resilient. The latest spike is not yet as big a spike as the one experienced in 2008. We have plenty to do to get this economy in better order, but we cannot actually influence the oil prices.
Craig FossWe need to keep in mind that part of the general lift in commodity prices is record high prices for the commodities we sell, as well as higher prices for the ones we buy, such as oil. The net impact is measured by terms of trade. Overall, our terms of trade have lifted 25 percent in the past decade. New Zealand has been a net beneficiary from the significant increase in commodity prices, including the price of oil.
Does he expect—as many commentators expect—that the next decade will see continuing oil price spikes?
It is possible. That is why, if we are to expect continued instability in oil prices, we need a resilient economy that is able to adapt quickly both in a straight economic sense and in terms of how people live their lives.
Why does New Zealand not have a strategy to reduce our current vulnerability to higher oil prices, as many other countries do?
People are pretty sensible. When they see prices going up, they start thinking about whether they want to continue with their energy-intensive business or lifestyle. As it happens, over the years New Zealand, as I understand it, has become less energy-intensive in its production, which is a trend that will probably continue if oil prices keep going up.
Spending on the motorways creates a more efficient traffic system whereby commuters get better value out of what they invest in their cars, bus fares, and petrol. We are keen to make sure we finish the current roading infrastructure investment because, despite the earthquake, it is important for New Zealand’s long-term productivity and standard of living.
For Kiwis who are struggling at the pump at the moment, how will the $10 billion the Government is spending on motorways help Kiwis who start walking or cycling and who flock to the buses and trains, as large numbers did in 2008 during the last oil shock?
It will help in two ways. It means that when they catch the bus it will actually spend more of its time travelling than sitting at the traffic lights. Buses are the most common form of public transport, and they need efficient roads to be effective. They cannot be run on railway tracks. It is the same with cars.
Will the Minister finally support an inquiry into how New Zealand can best protect its economy from high oil prices?
Probably not. When we talk about strategies to deal with high oil prices, we see that the fact is that the best strategy is for people to see the price signals and change their behaviour accordingly. The Greens understand that strategy because it is the theory and practice behind the emissions trading system, which is precisely about sending a price signal to people, although in that case it is about carbon usage.