Bishop Chris: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeBishop Chris: Oral Questions — Questions to Ministers[Sitting date: 28 April 2015. Volume:704;Page:2906. Text is incorporated into the Bound Volume.]1.CHRIS BISHOP (National)to the Minister of Finance: What reports has he received about lower than expected inflation in New Zealand?Hon BILL ENGLISH (Minister of Finance):Statistics New Zealand last week released the Consumers Price Index for the March quarter. It showed that the CPI fell by 0.3 percent in that quarter following on from a fall of 0.2 percent in the previous quarter which means that on an annual basis consumer prices increased by 0.1 percent in the year to March. As an example of how quickly things change as recently as December Treasury was forecasting that annual inflation to March would be 1.3 percent. At the same time though as we are seeing low inflation—in fact very low inflation which is usually associated with low growth in the economy—we are in fact seeing solid real economic growth. Latest figures from Statistics New Zealand show the economy grew 3.5 percent in the last year among the fastest in the developed world.Chris Bishop: What is contributing to lowering inflation?Hon BILL ENGLISH: As I pointed out usually you would expect low inflation to be associated with a slower-growing economy but that is not the case. By far the biggest contributor was the fall in the price of petrol which fell by 11 percent in the March quarter. We are not the only country with low inflation. The fact that the tradable sector saw prices reduce by 2.8 percent over the last year—that is inflation in our tradable sector was minus 2.8 percent—shows that we are effectively importing low inflation. This is proving to be good for households because it enables family budgets to go further. It also is a promising signal for businesses that want to invest because it signals that interest rates will be lower for longer. This is one of the factors that is underpinning good levels of confidence among our households and businesses.Chris Bishop: What are the impacts of lower than expected inflation on the New Zealand economy?Hon BILL ENGLISH: They are almost in every respect positive. It is an unusual position we have where solid economic growth is combined with very low inflation. The combination of the two means it is more likely that unemployment will keep falling and it is more likely that we will be able to sustain ongoing real growth in wages. Lower than expected inflation also suggests there is a bit more capacity in the economy to grow moderately for longer than we might have previously expected.Chris Bishop: What are the implications of lower than expected inflation on Government revenue?Hon BILL ENGLISH: Although low inflation is helpful for businesses and households it makes the job of reaching surplus a bit more difficult. Very low inflation means for instance prices are lower and less GST is collected. It also means that nominal wage increases are a bit lower so less tax is paid on them. We will see what effect it is going to have on Government surpluses when Treasury publishes its latest forecasts through the Budget but lower inflation is going to make it less likely that New Zealand will reach surplus for the 2014-15 year. Regardless of whether that number ends up a bit over or a bit under we have achieved a significant turn-round from very large deficits.Fletcher Tabuteau: Given this supposedly wonderful low inflation rate lower consumer spending and subsequent lower GST revenue in this context can the Minister explain to New Zealand households why the Government is continuing to manage a worsening debt burden and this is supposedly a good thing?Hon BILL ENGLISH: New Zealand’s debt burden has continued to grow while we have been running deficits and the point of that has been to assist the rebuild of Christchurch which is heading for a total cost of $16 billion in contribution from the Government as well as to maintain entitlements when the Government has less revenue than the expenditure commitments that it has made. However we are satisfied we are on track to balance our books and to begin repaying that debt.