Bennett David: Questions for Oral Answer — Questions to MinistersText is incorporated into the Bound VolumeBennett David: Questions for Oral Answer — Questions to Ministers[Sitting date: 06 March 2014. Volume:696;Page:16407. Text is incorporated into the Bound Volume.]1.DAVID BENNETT (National—Hamilton East) to theMinister of Finance: How is the Government’s economic programme helping to keep interest rates lower during this economic cycle compared to the previous economic cycle in the mid-2000s?Hon BILL ENGLISH (Minister of Finance): Some increase in interest rates is inevitable in a growing economy and the Government will do what it can to ensure that it does not put pressure on rising interest rates. In particular we need to avoid the mistakes of the previous economic cycle under the previous Government where Government spending picked up rapidly house prices soared and household debt increased sharply. This left households facing floating mortgage rates of almost 11 percent by 2008 and business interest rates exceeded 9 percent. Of course these high interest rates dampened business and investment growth and sent the export sector into recession. Floating mortgage rates have fallen to below 6 percent for a family with a $200000 mortgage. That has been a saving of around $200 a week compared with what they were paying in 2008 and you can be sure that they will not want to go back to 11 percent interest rates under a Labour Government.David Bennett: What steps is the Government taking to keep Government spending under control and how will this help take pressure off interest rates?Hon BILL ENGLISH: Two areas where the Government can work to avoid putting pressure on rising interest rates are through housing market regulation and Government spending control. As the Reserve Bank regularly points out careful Government spending will help to keep interest rates lower for longer. If the Government makes large cash injections into the economy when it is growing significantly and house prices are already high then interest rates will be pushed up further bearing in mind that New Zealand households still have quite high levels of debt. The Government has set a target of returning to surplus next year by understanding the cost drivers that lie behind Government spending and getting control of those.David Bennett: What approach is the Government taking to improve housing market regulation and how will this contribute to preventing a damaging spike in interest rates?Hon BILL ENGLISH: Rapid increases in house prices are damaging for the economy because they put pressure through a high exchange rate on our export sector. They are a challenge for the Government because they put pressure on the Government to fund the affordability gap for households that cannot afford rising mortgages and they are unfair on individuals who are trying to enter the housing market. Demand for housing is rising and a turn-round in migration flows is likely to push demand even higher. Unfortunately our planning rules and attitudes within our councils and to some extent the Government have restricted the supply of new houses that can be built in response to this demand. This is why the Government has passed legislation in this House opposed by Labour to streamline planning rules and is working with the Auckland and Christchurch councils to significantly increase the supply of housing over the next 2 or 3 years so that low and middle income families can benefit from homeownership and so that we can avoid high interest rates and have a healthy export sector.Grant Robertson: I raise a point of order Mr Speaker. It was such a long answer I wondered whether perhaps you had nodded off in the middle of it because—Mr SPEAKER: Order! That is not a point of order and it will in itself lead to disorder.David Bennett: What progress—[Interruption]Mr SPEAKER: Order! Can I just ask the member to please cease that loud barracking while I am calling for a supplementary question.David Bennett: What progress is being made to increase the supply of new housing as part of the Government’s wider programme to address issues around housing affordability?Hon BILL ENGLISH: The decisions on the supply of housing rest with councils but the Government can make it easier for them to make decisions to improve the supply of housing. Statistics New Zealand last week reported that the trend for new dwelling consents is at its highest level since September 2007 and double the level of March 2011. So there are some signs that the supply of housing is increasing but if we are going to avoid significant ongoing increases in house prices and therefore even higher interest rates we need councils to make more positive decisions for more housing supply.Dr Russel Norman: Does the Minister accept that the 20 percent increase in electricity prices over the last 5 years in addition to the 20 percent rise in house prices particularly in Auckland are putting pressure on the Reserve Bank Governor to increase interest rates and that his Government’s failure to control the inflation coming out of those two sectors is part of the problem as to why families are going to face higher interest rates?Hon BILL ENGLISH: No I do not accept that and for one simple reason: the rules around housing have been made by councils and it is important that we work with councils so that they understand that when they are making rules about a denser city or a more liveable city or rules that are anti - urban sprawl those decisions impact the whole economy. Particularly they can have a damaging impact on our export sector which council planners do not historically think about very much. So we all have a job to control Government spending to make our electricity market more competitive and to work with councils for more housing supply and if we do our job New Zealanders will enjoy lower interest rates than they otherwise would.Dr Russel Norman: Does the Minister believe that the 20 percent increase in electricity prices over 5 years—more than twice the rate of inflation across the rest ofthe economy—is a sign of a competitive market in the electricity sector or is it a sign of a failure of the competition in the electricity sector?Hon BILL ENGLISH: The rate of increase in electricity prices is half what it was when that member was in Government. It was 8 percent per year I think for 9 years. So this Government has taken the step of making the market more competitive. That is proving now to slow the rate of increase. Part of the increase of electricity prices is an investment programme begun by the previous Government which was necessary to spend hundreds—in fact billions—on upgrading the strength of our electricity grid to ensure security of supply and now the effect of that investment is flowing through into prices. But the market is more competitive. The last thing New Zealand needs is someone coming in destroying the competitive market putting us back 20 years to where I think Brazil is and us having to go and learn all the lessons again.Dr Russel Norman: With regard to the electricity market does he believe it is a sign of a competitive market when demand falls and prices rise?Hon BILL ENGLISH: Of course in the long run if demand keeps falling prices will eventually come into line with that. But I can tell you that the market is much better at sorting that out than that member ever would be if he became the Minister of Energy because his policy is all about Russel Norman setting the prices. In fact a better way to do it is electricity companies knocking on doors as they are now all over New Zealand offering big discounts.