[Sitting date: 03 May 2012. Volume:679;Page:1935. Text is incorporated into the Bound Volume.]
Dr RUSSEL NORMAN (Co-Leader—Green) to the
Minister of Finance: Does he agree with National Bank Chief Economist Cameron Bagrie that we are not seeing an export-led recovery, and increased activity in “spending centric” sectors such as housing is “not the stuff of a durable, long-term, sustainable upswing”?
Hon BILL ENGLISH (Minister of Finance)
: No, not exactly. I think it is a bit soon to jump to conclusions about how far the New Zealand economy can rebalance. It took a long time to become too much dominated by consumption and debt, and it is going to take a while to turn into a more strongly export-driven economy. I would certainly share with the chief economist the concern that a continued high exchange rate makes it harder for our exporters to grow at the speed that will successfully rebalance the economy.
Dr Russel Norman: Does he believe that he has taken sufficient measures to rebalance the economy, given that New Zealand has been running current account deficits at a time of record export prices, meaning that despite earning more than ever for what we are selling offshore, we are still not paying our way in the world?
Hon BILL ENGLISH: We think we have taken considered and balanced measures to push the economy in the right direction. We could, of course, have taken much more dramatic measures—say, for instance, balancing the Government’s Budget a couple of years ago by making widespread cuts. But we proceeded to borrow and increase Government spending in a way that makes it a bit harder to rebalance the economy, but that is what was required in the middle of a deep recession.
Mr SPEAKER: Order! I apologise to the Minister, but this question was asked by the leader of the Green Party and we are getting unacceptable interjection from members of the Labour Party, who are making it hard to hear the Minister’s answer. He is not being particularly provocative. He appeared to me to be giving a thoughtful answer to the question asked. I ask members to be more reasonable, please.
Dr Russel Norman: Has he seen Treasury’s forecasts for the current account deficit deteriorating over the next 3 years to 6.9 percent of GDP by 2015, and does he think that if these projections come to fruition, that will be successful management of the New Zealand economy?
Hon BILL ENGLISH: I think that Governments for the last 30 years have found it difficult to manage the current account deficit, because if you could manage it directly then you would make it much smaller than it is. That is one of the challenges in New Zealand. We believe we have been making decisions, and will continue to do so, that will improve our savings and export performance over time and that are likely, but not guaranteed, to improve the current account deficit. I happen to be a bit more optimistic than Treasury forecasts about where we will get to, because I see significant changes in New Zealanders’ behaviour around their understanding of what the economy needs for growth—which is exports, not debt—and their own personal decisions around savings.
Michael Woodhouse: What has the Government done to shift spending into the tradable sector?
Hon BILL ENGLISH: Among a number of things, we have changed the balance of the tax system so that there are higher taxes on consumption and property speculation, and less tax on work and saving. We are working hard on the productivity of government, which uses a lot of resources—more than it should for the output that it achieves. We have curbed spending increases in government and we have also focused strongly on the competitiveness of our export businesses, trying to help them manage their costs down and help invest in their innovation so they can perform better.
Dr Russel Norman: Is he not concerned that this economic recovery looks disturbingly similar to previous economic recoveries, which are focused on retail, housing, and consumer spending, rather than exports and import substitution, and that after 4 years we still are seeing a recovery that looks disturbingly like the previous 10 years of the New Zealand economy?
Hon BILL ENGLISH: No, I am not overly concerned about that. I think things that would be of concern would be, for instance, if credit growth and borrowing took off, and there is no sign of that. But I am pleased the member is concerned about that balance, because a lot of our discussion around his policy proposals and others is focused on the fact that they want the Government to spend more and they want to stop meaningful export activities such as the oil and gas sector or dairy farming, which are critical—both of them—to New Zealand’s future export success. If the member wants to support a rebalanced economy, he should support those things, not oppose them.
Dr Russel Norman: Does he agree with the Governor of the Reserve Bank that the high exchange rate is stopping the rebalancing of the New Zealand economy, and what kind of measures will he take in order to lower the level and the volatility of the New Zealand exchange rate?
Hon BILL ENGLISH: I do agree with the Governor of the Reserve Bank on that point. The measures the Government is taking are to influence those things we can influence. We cannot actually set the level of the exchange rate. If we could, then we would just drop it 10c tomorrow. But we are focusing on the competitiveness of our exporters, making sure they have got the benefit of good infrastructure, a skilled workforce, and sensible regulation and cost from central and local government.
Dr Russel Norman: Has he read the Statistics New Zealand latest business operations survey, which shows that 46 percent of export businesses surveyed rate the high and highly volatile exchange rate as the single biggest impediment to export growth, and should that not be the central focus of Government economic policy ahead of those other matters?
Hon BILL ENGLISH: I am surprised that it is only 46 percent; I would have thought it would be more, actually. The Government focuses on those things it can influence. To actually have a direct impact on the exchange rate you need to have a couple of hundred billion US dollars in the bank—and we do not; we actually owe
hundreds of billions—and it helps if you are not a democracy. That is a feature of those countries that do directly manage their exchange rates, but that is not where we are.
Dr Russel Norman: Has the Minister of Finance seen the measures taken by the United States and the United Kingdom in terms of quantitative easing, which have had a significant downward pressure on their currencies, and even the quite unorthodox measures taken by the Swiss National Bank, which have all had downward pressure on their currencies and have helped their tradable sector?
Hon BILL ENGLISH: I think you would describe the measures taken by the UK and US central banks as emergency measures. If they were fortunate enough to be in the situation of the New Zealand economy they would not be doing quantitative easing or money printing, because although that solves some shorter-term problems, it is storing up longer-term problems for those economies, which will require further difficult adjustments that might well take 10 years to get through. We do not have to do that. We are able to get moderate growth in this economy without resorting to those emergency measures.
Dr Russel Norman: Is the Minister of Finance not saying that we will continue with orthodox economic policies that, according to Treasury’s projections, will result in a 6.9 percent current account deficit in 2015? If we go down that path we will have no option but to borrow more and to sell more assets in order to meet that current account deficit.
Hon BILL ENGLISH: We will continue with policies that are focused on improving performance where it matters, and that is in terms of savings, both household savings and Government savings—and both of those are going to continue to improve quite significantly over the next few years—and improving export performance. I look forward to the member’s support, particularly on the export side, where I would hope that he could get behind measures that will help the competitiveness and the sustainability of our biological production industries and of our oil and gas industry, because more jobs, more growth, and more investment will come from the success of those industries. The member and his party are known for opposing not only their expansion but the existence of those industries.
Dr Russel Norman: Does the Minister agree that one of the most important measures that could be taken would be to drive more capital into the productive sector—and that is why we have been proposing a capital gains tax, amongst other measures—and that, in fact, what we have seen over recent years is that lending into the housing sector has increased while lending into the business sector has actually declined?
Hon BILL ENGLISH: As has been discussed a number of times in the House before, the Government considered the option of a capital gains tax, and both the Tax Working Group—in fact, every tax working-group that has looked at it—and this Government decided that, on balance, although there are some merits in the idea, it was not the best policy decision. We believe that the measures we took in the 2010 Budget regarding taxation of property will lead to collecting around $2.5 billion more tax from that sector, and that is going to have a longer-term effect in reallocating capital into the export sector.
Dr Russel Norman: In light of Treasury’s projections that under current policy settings the current account deficit will deteriorate to 6.9 percent of GDP by 2015, is he not concerned that his Government is simply repeating the same mistakes of the previous Labour Government, where we allowed a high and growing current account deficit, doing nothing as our external debt grew and standing by while another housing asset bubble formed; and is it not time that we changed direction, or will we just have to keep building up debt and selling off assets to finance the current account deficit?
Hon BILL ENGLISH: Well, we are certainly making progress in that respect, because a current account deficit even at 6 percent would be considerably lower than what it was 3 or 4 years ago, when it was 8 percent for a number of years, and that certainly was an imbalance in the economy. In the shorter term there will be pressure on the current account because of the rebuild of Canterbury, which has an extensive imported component, and because business investment intentions are now the highest they have been for 5 years, so our businesses are gearing up to import more machinery and services and to improve their productivity and output. But in the long run we believe that the change of behaviour of New Zealanders and their attitudes to savings and a more competitive export sector—a much more competitive export sector—will assist in closing that current account deficit to sustainable levels, which are probably somewhere around 3 to 4 percent.
Hon David Parker: Does the Minister not realise that a near zero Budget, projections of decreasing export earnings, and rising net international liabilities to the end of the projection period are proof of his Government’s failure to properly rebalance the economy?
Hon BILL ENGLISH: As we have been discussing, we certainly agree with the view that the economy has not yet successfully rebalanced and that there are some headwinds to achieving that as we move away from being a debt-funded, consumption-driven economy to being a savings-driven, export-driven economy. That is going to take some time, particularly when we have had a recession and a major earthquake along the way. We believe that we are making progress, and the fact that we are likely to grow faster than the UK, the US, Canada, and all of Europe, and at about the same speed as Australia, is an indication we are probably on the right track.
Rt Hon Winston Peters: Given that the biggest problem our exporters face is, as the IMF has said, a grossly inflated dollar—by about 20 percent, the IMF has said—does he intend to go on just making sympathetic noises and doing nothing?
Hon BILL ENGLISH: The question with the exchange rate is what measures the Government could take to have an impact. We could swap to a whole bunch of disastrous policies, and that would collapse the exchange rate. We do not intend to do that.
Hon David Parker: How can the Minister say that his plan is working when all the projections show exports dropping and the current account deficit and net international liabilities getting worse; and is it his intention or the Prime Minister’s intention to give another pre-Budget speech next week, this time entitled “Sticking to a Plan that is not Working”?
Hon BILL ENGLISH: No, but I will be giving speeches saying there is no way we will adopt the Labour Party’s silly plans.