1. JOHN KEY (Leader of the Opposition) Link to this
to the Prime Minister
Does she agree with the Minister of Finance that “tax cuts are not self-funding. If unaccompanied by expenditure cuts they simply lead to burgeoning deficits and debt”; if not, why not? [ Interruption]
Hon Dr MICHAEL CULLEN (Acting Prime Minister) Link to this
It is not often a Leader of the Opposition gets applauded just for being able to ask a question. The Minister of Finance is correct to argue that there are always opportunity costs attached to revenue reductions. The impact of these is greatly lessened if the Government has been adopting a strong fiscal stance over a period of years—which this Government has been.
Is it the intention of the Government to stick to the spending allowances for Budget 2008 as outlined in the Budget Policy Statement, which were $3.1 billion in operating spending, including the business tax package, and a $1.5 billion revenue reduction; if not, what are the Acting Prime Minister’s best estimates of the variances of those allowances?
Hon Dr MICHAEL CULLEN Link to this
Clearly if there are going to be any significant revenue reductions, then that cannot be accommodated within that $3.1 billion.
Tim BarnettHas the Prime Minister seen any reports on whether the Minister of Finance was, in his recent comments, expressing his personal views or his views as Minister?
Hon Dr MICHAEL CULLEN Link to this
The views are expressed in the 2005 Budget speech in relation to the United States and of course are both the Minister’s personal views and therefore, by definition, the Government’s views as well, given it was the Budget speech. But that is quite different from the situation where Mr Key called to increase net debt to 25 percent—something that Mr English said had never been one of National’s policies. Presumably Mr Key does have a personal view, even if it is only on Government debt.
Does the Prime Minister agree then that if the new spending component in the Budget is to be stuck to at $3.1 billion as per the Budget Policy Statement, then the size of the tax package, if it is in excess of $1.5 billion as noted in the Budget Policy Statement, has to cut into the new Budget spending component?
Hon Dr MICHAEL CULLEN Link to this
The Government has set four tests for any tax cuts that are incorporated in this Budget. The Minister of Finance has noted that it is quite clear that it does not matter what the Government does, as Mr Key will promise bigger tax cuts, no matter what the impact would be on the provision of social services or the long-term debt track. The Government’s basic debt anchor will be reaffirmed in this year’s Budget as being at around 20 percent of GDP.
I raise a point of order, Madam Speaker. I asked the Acting Prime Minister a pretty simple question, which was, if the new Budget spend is to be $3.1 billion and the revenue reduction is to be $1.5 billion, would he confirm that if the tax package is larger than that, it would cut into the new Budget spend? It is a relatively simple question to answer. Maybe he would like to do that.
Madam SPEAKERThe Acting Prime Minister did, in fact, address the question, and, as members know, the Standing Orders do not provide that specific answers have to be given to questions. A Minister must just address the question.
I raise a point of order, Madam Speaker. I do not want to disagree with your ruling, Madam Speaker, but I do not think he did answer the question, unless the point that he was making was that allowing debt to rise to 20 percent of GDP from the 18 percent it is at today would indicate that the tax package would, in fact, be adding to his borrowing programme—and I am not sure—
Gordon CopelandCould the Prime Minister clarify whether when her Minister of Finance said in the House last week that the programme of tax cuts over a 3-year period that he will announce on Budget day will in each of those years exceed indexation, he was saying that they will exceed inflation over just that forecast period or that they will exceed the cumulative inflation of 23.8 percent since 1 April 2000, plus the forecast over the next 3-year period?
Hon Dr MICHAEL CULLEN Link to this
I think the member is mixed up between various elements here. I think what he means by “indexation” is the movement of thresholds. That translates into a certain level of tax reduction. I indicated last week that I am pretty confident at this point that the actual tax reductions will be larger than what would have followed from indexation.
Can the Acting Prime Minister confirm what he already seems to have said today—that in fact the ratio of debt to GDP will be rising from about 18 percent, where it is today, to about 20 percent, as a result of the fact that the Government’s tax package, when added on to the new Budget spending component, cannot fit within the current debt profile?
Hon Dr MICHAEL CULLEN Link to this
I can confirm that the Government’s debt targets remain unchanged. It was the member who suggested that the Government was too low-geared, and should increase its debt target to at least 25 percent of GDP—that is, in debt servicing costs, an increase of $700 million a year.
Does the Prime Minister agree with her Minister of Finance when he said that tax cuts that give people more than $10 a week are affordable but economically irresponsible, but that cuts that deliver less than $10 a week are not worth having—in which case, can she tell us what sorts of tax cuts we are in for in the 2008 Budget: ones that are economically irresponsible or ones that are not worth having?
Hon Dr MICHAEL CULLEN Link to this
The member has lost so much money in the last few months that he might be quite pleased by the size of the tax cuts. But these tax cuts will be fair and equitable. They will not lead to a reduction in social services, and they will not place further pressure upon inflation.
Hon Dr MICHAEL CULLEN Link to this
A debt ratio of 25 percent of GDP would require an additional $700 million a year of expenditure on servicing that debt. That would have to squeeze out other opportunities.
Has the Prime Minister noted the track record of her Minister of Finance, which is that he promises tax cuts and then does not actually get to deliver them to New Zealanders; and is the reason that the first tranche of the tax cuts will probably come in before the election that even the Prime Minister does not trust the Minister of Finance to roll them out after the election?
Hon Dr MICHAEL CULLEN Link to this
The Prime Minister trusts the Minister of Finance both to ask and to answer questions in Parliament—unlike that member’s deputy.
Has the Minister of Finance noticed that in the New Zealand Institute of Economic Research’s business survey that was out today, confidence has fallen to a 33-year low, and that one of the reasons it is at a 33-year low is that people have been talking down the economy—in which case, did the Minister of Finance help that process when he talked about an oncoming recession?
Hon Dr MICHAEL CULLEN Link to this
We have the extraordinary sight of the Leader of the Opposition being desperate to talk up the economy so that he can justify unsustainable tax cut promises. I remind him that the general business confidence survey was at its lowest in December 2005, and that after that the economy grew. It has been in negative territory for about 5 years, during which we have had the longest period of economic growth for well over a generation. There is a disconnect between these surveys and what the economy does.
Heather RoyHow can the Minister deny that tax cuts stimulate economic growth and increase tax revenues; and why does he ignore the fact that New Zealand could take the lead of any number of former Eastern European socialist countries, which with lower, flatter rates of tax experienced much higher real growth in 2006 than New Zealand did—countries such as Estonia with 11.2 percent growth, Latvia with 11.9 percent growth, and Lithuania with 7.5 percent growth?
Hon Dr MICHAEL CULLEN Link to this
I thought almost anybody in the world had long since got away from the belief that if we keep cutting taxes, revenue keeps increasing faster. What would happen at the point when we reached a zero tax rate is not clear as a piece of logic. But if the world were full of such free rides, then ACT would not be at 1.1 percent or whatever it is at in the public opinion polls.