2. JOHN KEY (Leader of the Opposition) Link to this
to the Prime Minister
Does she stand by her comment that mortgage rates are “not going through the roof”; if so, why?
Hon Dr MICHAEL CULLEN (Acting Prime Minister) Link to this
Yes, but people’s mortgage rates are being affected by the general credit squeeze that is filtering through from offshore to New Zealand, and that, in conjunction with the rollover of fixed-rate mortgages, is putting some real pressure on some households.
Is it correct that mortgage rates are now at a 10-year high, that someone who purchased a house this time last year would have faced a floating interest rate of about 9.5 percent and today faces a floating interest rate of 10.5 percent, and that the Reserve Bank is predicting that interest rates may well go higher; in which case, given that interest rates have doubled under her Government’s administration, why does she not think they are going through the roof?
Hon Dr MICHAEL CULLEN Link to this
Taking the last part first—of course, one can remember when a previous National Government tried to regulate interest rates at 11 percent for a mortgage rate, and nobody could actually get a mortgage. The mortgage rates have been over 20 percent within recent times. But the member is quite correct: mortgage rates have gone up in the last year. But when the House was asked to consider some alternatives to the current operation of monetary policy, Mr English simply said that the Reserve Bank should get on with putting up mortgage rates even faster and further.
Is the Prime Minister aware that if someone had purchased one of the Government’s so-called affordable homes, let us say 2 years ago, and was today wandering into his or her local friendly bank to renegotiate, that person would be paying approximately $320 a month more in interest rates; in which case can she confirm that her Government’s planned tax cuts will offset that $320 a month?
Hon Dr MICHAEL CULLEN Link to this
The member will have to wait, but he needs to tell himself very clearly that if the tax cuts are too large and put further upward pressure on mortgage rates, then the tax cut for those people who have mortgages cannot possibly compensate for the mortgage rate increases. The tax cuts are spread over the entire population, not just those who have high mortgages.
Has the Prime Minister seen recent media reports that show that the average household now faces an increased cost of $1,000 per month for its increased fuel prices, food prices, and rising interest rates; and although members of her Government sit around feeling sorry for themselves, why have they not got off their backsides before now and cut interest rates a lot earlier—or do they not care about the New Zealanders who are paying $1,000 a month more?
Hon Dr MICHAEL CULLEN Link to this
I have sat here for the last couple of weeks feeling sorry for that member, not feeling sorry for myself. If that member really believes that international oil prices are set by the New Zealand Government, and international food prices are set by the New Zealand Government, then I wonder what he was doing at Merrill Lynch for all those years on foreign exchange speculation. When it comes to interest rates, of course, we have enjoyed the longest, strongest economic expansion for some 60 years. It is not surprising that the Reserve Bank has adopted a tighter monetary policy. But that member keeps arguing, saying we should completely ignore the impact of fiscal policy on monetary policy.
Has the Prime Minister seen the statement this morning from the Minister of Finance in which the Minister stated that the debt to GDP target would be at 20 percent in the Budget and that it was likely to rise to that level, given that it is coming off a base of about 18 percent at the moment, and can the Prime Minister confirm what will cause the increase in the debt to GDP target rising from 18 percent to 20 percent?
Hon Dr MICHAEL CULLEN Link to this
As the Prime Minister landed only about 2½ hours ago, I have no idea what newspaper reports she has read by this point. What I can tell the member is that the debt to GDP ratio target of 20 percent has been in the Budget for the last few years and it continues to be the Government’s debt anchor. That member, Mr Key, has said that the target should be raised to 25 percent of GDP. He can never remember what he has said from one day to the next.
Can I then spell it out for the Acting Prime Minister that it is as simple as this: the reason the debt to GDP target is rising is that the Prime Minister’s Government is to have a tax cut programme, and on Budget day her Government will claim it is for spending on infrastructure; and when National argued that it was for infrastructure it was all wrong, but under her Government in election year it will be all right?
Hon Dr MICHAEL CULLEN Link to this
The member clearly has cloth ears, if not a cloth cap. The debt to GDP ratio is not rising. The only person in this House who has called for a higher debt to GDP ratio is Mr Key—25 percent; $700 million a year in debt-servicing costs.