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House of Representatives
8 March 2012
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3. Economy—International Liabilities


3. Hon DAVID PARKER (Labour) to the Minister of Finance: What is the projected growth, if any, of New Zealand’s international liabilities under this Government’s policies, and what are the components of those liabilities?

Hon STEVEN JOYCE (Associate Minister of Finance) on behalf of the Minister of Finance: According to the Pre-election Economic and Fiscal Update issued in October last year, New Zealand’s net international liabilities are forecast to increase from 73 percent of GDP as at September 2011 to just over 77 percent of GDP by 2016. One of the main components of this is an expected increase in imports and investment from offshore connected with the Canterbury rebuild. The relatively high exchange rate combined with weaker world demand for our export goods and services are also factors predicted in the Pre-election Economic and Fiscal Update. In contrast to the period of high current account deficits in the mid-2000s, where net international liabilities hit 83 percent of GDP, household and domestic saving is now increasing. Another positive factor is the Government’s commitment to return to Budget surplus by 2014-15.

Hon David Parker: Do the projections of the current account deficit, which the Reserve Bank projects will rise back up to 5 percent, and Treasury projects will increase back up to 6.9 percent, show that the current account deficit problem remains unsolved?

Hon STEVEN JOYCE: No. Both those numbers are predicted to increase, as the member said, by both the Reserve Bank and Treasury, but to nowhere near the levels they were at in the 3 years prior to this Government coming into office, where they peaked at an average of 8 percent—the balance of payments deficit of GDP. So even though it is predicted to rise, it is largely because of imports associated with the Canterbury rebuild, and it is not projected to return to previous levels.

Hon David Parker: Is the current account deficit projected for every year of the forecast period under his Government’s policies funded by selling more assets to foreigners and borrowing more money from overseas?

Hon STEVEN JOYCE: Obviously, the current account deficit is funded by a net increase in international liabilities, and they can be across a range of factors. It is difficult to isolate any single one.

Todd McClay: How have New Zealand’s net international liabilities been tracking over the last 10 years?

Hon STEVEN JOYCE: That is a very interesting question. In March 2002 New Zealand’s net international liabilities were 67 percent of GDP. By 2008 they had deteriorated to around 83 percent of GDP, which is quite high by global standards. This was the product of some misdirected Government policies that encouraged borrowing, spending, and housing speculation. It left the economy lopsided and the current account deficit around 8 percent of GDP for the years 2006 to 2008. Since 2008 New Zealand’s net international liabilities have improved significantly to 73 percent of GDP as of September 2011. Although they are forecast to increase over the next 4 years for the reason I outlined in my answer to the primary question, they will still be well below the levels of 2008.

Hon David Parker: Does not the fact that the Minister acknowledges that net international liabilities from here on will continue to go up until the end of the forecast period, combined with the current account deficit rising, show that we have not cured the fundamental imbalances in the New Zealand economy?

Hon STEVEN JOYCE: I think the member confuses a relative position with an absolute position. So relatively they will be increasing, but in an absolute sense they are much lower than they were when that Government left office. So he is in there digging himself further into a hole, and showing that actually the previous Government’s attitude to foreign debt and international liabilities was considerably worse than the current Government’s.

Hon David Parker: Why is it his Government’s policy to encourage the sale of productive farmland and shares in our power companies to foreign buyers and to encourage more overseas borrowing, to fund our current account deficit, rather than consider other policies that address the fundamental imbalances in our economy?

Hon STEVEN JOYCE: I have to say that is a little rich coming from the Opposition, because over Labour’s term in office it boosted net international liabilities significantly, and showed absolutely no concern about that. The reality is that there was a complete misrepresentation in the member’s question—at least one—and that was the suggestion that we are seeking to sell assets overseas, which of course is not the case whatsoever. The important point is that the only way you can improve that position is to improve the position of New Zealand companies competing in international markets, and that means making those companies more competitive, and that means the sorts of policies this Government is doing to improve things, like amending the Resource Management Act to allow resource use and encouraging the capital markets to keep Government debt down to get the Government books back into balance—all things off the top of my head that the current Labour Party Opposition opposes.