What are the implications for New Zealand’s economy from the current turmoil in European financial markets?
The news from Europe continues to get worse. There are ongoing worries that a number of countries, starting with Greece, may be forced to default on their Government debt. The resulting losses would affect the soundness of European banks and possibly send Europe back into recession. Europe still accounts for 13 percent of our merchandise exports, so any economic weakness in Europe is not good news for New Zealand. There is also the possibility that the financial markets in which the New Zealand Government and New Zealand banks borrow could be disrupted at times.
What are the main actions the Government has taken to help New Zealand ride out this crisis and keep interest rates low?
There has been concerted action since the 2008 financial crisis to reduce New Zealand’s vulnerability to the financial markets in which we borrow. The Reserve Bank has ensured that our banks are in a sounder position now than they were then. The Government is also working to shore up its own position, at the same time as dealing with the recession, by aiming to keep net debt below 30 percent, to do what it can to keep interests low, to continue to protect the most vulnerable, but also to begin the task of making our export sector as competitive as possible so that regardless of what happens in Europe, New Zealand can continue to increase jobs and incomes.
What has been the main benefit to New Zealand of having a stable economy and sound finances?
There have been some direct benefits to households. Despite a recent recession, there has been continued job growth in New Zealand, which will assist those who lost jobs in the recession. Interest rates for mortgages have almost halved over the last 3 years, falling from 11 percent to about 6 percent today. That is worth around $200 per week or $10,000 a year to a borrower with a typical mortgage. On current trends we should be able to keep lower interest rates for longer.
In relation to his claim of sound fiscal management, how many deficits has his Government run in the 3 years of office, and how does this compare with the record of surpluses in the previous 9 years?
The Government has run three deficits in 3 years. I think it is only Labour that still regards the last 10 years as the benchmark for economic management.
Would the implications for New Zealand be worse if his Government had implemented a tax-free threshold of $5,000, removed the GST from fruit and vegetables, and restored research and development tax credits, as Labour has proposed; if so, how much worse?