1. PESETA SAM LOTU-IIGA (National—Maungakiekie) to the Minister of Finance: Why is the Government intent on rebalancing the economy, and what benefits will that bring?

Hon BILL ENGLISH (Minister of Finance) : The Government needs to work on pushing our resources back to where New Zealand has a competitive advantage. This is a big job. Our tradable sector has been in a 5-year recession, during which its output has declined by 10 percent. By contrast the non-tradable side of the economy has grown by 12 percent, but we do need to reorient it in order to create sustainable jobs and higher incomes.

Peseta Sam Lotu-Iiga: Which sectors have performed the best and the worst over the past 5 years?

Hon BILL ENGLISH: The major weaknesses have been concentrated in services and manufacturing. Exports of services have fallen by 18 percent in real terms since 2004, and every category of manufacturing has shown a similar decline. This includes major areas such as food processing, which is a core part of our economy. In fact, the overall output of the tradable industries has now not increased since 2002. By far the strongest sector of the economy has been Government administration, which has grown by 29 percent in real terms since 2004. Clearly this divergence cannot continue.

Peseta Sam Lotu-Iiga: What impact on New Zealanders has this unbalanced economic performance produced?

Hon BILL ENGLISH: An unbalanced economy tends to hold growth back. That is why this economy grew by less than 1 percent per year in the 3 years before the global crisis arrived. This is a big drain on the potential for higher incomes in New Zealand. Had the economy grown at its normal rate over the past 5 years, the average household income would now be $5,000 per year higher after tax than it is.

Hon Sir Roger Douglas: Does the Minister agree that any rebalancing must focus on private sector job creation; if so, can he explain to the House how it makes sense to prohibit young people from accepting a job at the rate of $10 per hour, or $400 per week, and in the process force them on to the unemployment benefit, where they receive about $3 per hour, or $120 per week, without contributing anything to society?

Hon BILL ENGLISH: The Government shares that member’s concern about the high number of young people who are unemployed. We will have the opportunity to discuss his solution as he brings his bill, the Minimum Wage (Mitigation of Youth Unemployment) Amendment Bill, to the House.

Peseta Sam Lotu-Iiga: What steps is the Government taking to rebalance the economy?

Hon BILL ENGLISH: The range of measures that are in place was outlined in the Prime Minister’s statement to the House a few weeks ago. Currently we are considering the advice from the Tax Working Group, which advises on ensuring there is more uniform taxation of all sectors, including property, and on switching from our reliance on consumption and income taxes. We believe this could give New Zealanders better incentives to work, save, invest, and reduce their tendency to consume more than they earn by borrowing to make up the difference.