2. TODD McCLAY (National—Rotorua) to the Minister of Finance: What recent reports has he received on the economy?

Hon BILL ENGLISH (Minister of Finance) : Today’s Financial Stability Report from the Reserve Bank says that New Zealand remains vulnerable to global financial instability, but that New Zealand’s funding conditions have improved due to increased household saving, limited expansion of credit, and the freeing up of international debt markets. The Reserve Bank has confirmed its intention to strengthen the core funding ratio of New Zealand banks, which will require them to source more of their funding from local deposits and long-term debt—this will increase the stability of the financial system—and it notes that an increase in household savings and labour market resilience has helped to keep financial stress contained.

Todd McClay: What factors does the report identify as important to New Zealand’s financial stability?

Hon BILL ENGLISH: In view of recent global events, financial stability is becoming a competitive advantage for New Zealand. The Reserve Bank remains supportive of the Government’s intention to get back to surplus. It notes that this will help contain overall national debt and ensure the Government can respond to future downturns. The bank identifies global financial instability as a source of risk to New Zealand. It also identifies New Zealand’s relatively high net external debt as a vulnerability.

Todd McClay: What does the report say about why reducing public debt is important?

Hon BILL ENGLISH: It says the same things as commentators and banks and economists are saying all around the world, which is that lower public debt will ensure that the Crown has the future financial capacity to respond to a significant economic downturn, natural disaster, or other crisis. The bank goes on to say that renewed financial market turbulence could increase the costs of borrowing, and that provides another reason for consolidating our fiscal position while borrowing costs are relatively low.

Todd McClay: What is the Government doing to reduce public debt?

Hon BILL ENGLISH: The most important thing we are doing to reduce the burden of public debt is to work on those longer-term policies that will help lift New Zealand’s growth potential, such as continued investment in infrastructure, encouraging and supporting more young New Zealanders to get better levels of skills, investing in innovation, and improving the management of the public sector. Alongside that, in the shorter term we are working to get back to a surplus.

Hon David Parker: Amongst the reports he has received about the economy, why are there none describing decent economic growth, wage growth, or more jobs; and is it because the only place he would find those reports would be in Australia?

Hon BILL ENGLISH: The member is simply wrong. We have had reports recently from all sorts of sources that New Zealand’s moderate economic growth will still be higher than that of the United States, the United Kingdom, and the whole of Europe, and will be similar to Australia’s. We have also got continued job growth, as reported last week in the quarterly employment survey, and we have continued wage growth, as also reported just last week by New Zealand’s own department of statistics.

Hon David Parker: If the economy is going so well, why are we having a zero Budget and a thousand New Zealanders a week leaving for Australia?

Hon BILL ENGLISH: The member needs to make up his mind. He was just saying it was not going anywhere at all. In fact, there is moderate growth—[Interruption] There is moderate economic growth, moderate employment growth, and, actually, fairly considerable wage growth. Over the next few years it is likely that those will be just as strong, if not stronger, than is the case in Australia, which the member may be interested to know is starting to experience a number of the same economic pressures as New Zealand did 3 years ago, and it will be interesting to see how those play out.

Louise Upston: What steps has the Government taken to balance its books in the past 3 years?

Hon BILL ENGLISH: In the past 3 years one of the significant steps we have taken is simply to commit to less new spending. The last 4 years of the previous Labour Government ran up about $15 billion of new spending. In the last 3 years under this Government we have totalled $750 million of new discretionary spending. So although we have not cut total Government spending, we have slowed down the rate of growth considerably and focused on using all that money to get better results.