3. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
By what amount has the Reserve Bank lowered the official cash rate today, and what reason has the bank given for this action?
Hon BILL ENGLISH (Minister of Finance) Link to this
As the member will know, the governor has reduced the official cash rate by 50 basis points to 2.5 percent. It noted that the Christchurch earthquake had caused considerable disruption. Although it is difficult to know how large or long lasting this will be, the bank has said that economic activity will be negatively affected. Secondly, the Reserve Bank noted, as I have previously in the House, that before the earthquake the growth was weaker than expected through the second half of 2010, because households had been careful with their money and the agricultural sector has been paying off its debt. The Reserve Bank noted that the signs that the economy was picking up in early 2011 have been more than offset by the earthquake.
Hon David Cunliffe Link to this
By how much did the Reserve Bank revise downwards its estimate of economic growth in the last quarter of 2010 in today’s Monetary Policy Statement?
I cannot give the member an exact answer, but I am sure it did revise it down. I think if we go back we will find that it has revised down its forecasts for two or three quarters of this year, as well.
Hon David Cunliffe Link to this
Given that the bank has revised down its pre-earthquake forecast for the last quarter of last year, and confirmed that the economy was either flat or in recession for the last two quarters of last year, can the Minister say how much his tax cuts stimulated the economy, given the bank’s comments that “Even before the earthquake, GDP growth was much weaker than expected”?
It is always hard to judge what might have happened if we had not put up the tax package. I think it is important to remember, though, that the tax package was broadly fiscally neutral. It was not expected to stimulate the economy, because whatever people were getting through income tax cuts they were paying back to the Government through higher GST or higher tax on property.
Hon David Cunliffe Link to this
Have households been net savers or dissavers in the last 2 years according to Reserve Bank data released today?
I think the data will show that—to use the member’s term—the rate of dissaving has slowed. In 2007 New Zealand households were spending something like $1.11 for every dollar they earned. The Reserve Bank forecasts show that we will have positive savings rates over the next 12 or 18 months for the first time in 20 years. That is good for the economy.
Hon David Cunliffe Link to this
Given that the Reserve Bank has confirmed today that it estimates households will not actually start positive saving until 2013, and have continued to increase their borrowings since the Minister took office, how can he possibly blame the deepening national recession on household saving?
Well, I disagree with the member’s idea of a deepening national recession. The fact is that the usual way in which the New Zealand economy recovers is for people to go back to the shops, go back to the housing market, and start spending on the back of easier credit. That is simply not happening this time, because banks are not going to lend more money to people to drive up house prices and to encourage retailing. So people are saving, and they are getting on top of their debt. That means a flatter economy in the short term but a stronger one in the long term.
Hon Sir Roger Douglas Link to this
Will the Minister explain to the Prime Minister that his instructions to the Governor of the Reserve Bank on interest rates only create uncertainty in the minds of investors, particularly overseas investors, thereby killing off a good deal of investment that might otherwise have taken place?
There were no instructions to the Reserve Bank governor. As he said this morning, he made the decision about interest rates on his view of the economy.