English Bill: Debate on Budget Policy Statement 
English Bill: Debate on Budget Policy Statement 
[Volume:670;Page:17053] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 Mr Goff’s speech was enthusiastic but almost all of it was wrong—just simply wrong in fact let alone wrong in analysis. His speech showed what the public know which is that Labour still does not understand the mess it made of the New Zealand economy when it was in Government particularly from 2004 onwards. Although the earthquake is a very significant and humanly tragic event it will not knock the Government off course in rebuilding and rebalancing the economy towards some kind of sustainable strong growth that raises incomes raises people’s opportunities and now assists with the rebuilding and reconstruction of Christchurch. 
I will talk about just a few things on which Mr Goff was wrong. I am interested in Labour’s rapidly developing theory about skills shortages in Canterbury. Apparently Labour’s skills strategy anticipated the earthquake. Apparently if one has the right kind of plan it includes things like earthquakes. There will be issues about getting sufficient skills in Canterbury but I think the story of skills development in the next 12 months will reflect what has happened in the past. Back in 2006 and 2007 there were skills shortages because we were in a housing bubble. There were massive increases in debt and massive increases in credit. New Zealanders were paying an awful lot of money for houses and building lots of new ones all off the back of foreign-lent money. With the global financial crisis that situation turned out not to be sustainable. The building and construction industry then went into a fairly deep recession. It has been propped up by the investment of this Government and long-term infrastructure projects. Some of our major companies have found that 90 percent of their work has been publicly funded work. We have committed billions of dollars to long-term infrastructure investment that has supported the maintenance of those skills. 
As it happens if it were not for the most recent Christchurch earthquake the reconstruction effort after the first one would have been taking off about now. It was pretty obvious that there was spare capacity in the construction industry to pick up that effort. Now that we have had the second earthquake which according to Phil Goff we should have anticipated it is likely that in 12 months’ time all that spare capacity in the construction industry will have been taken up including all the thousands of people who have been made redundant from it over the last 2 or 3 years. It is likely that we may be back into skills shortages. I might say again as an illustration of the difference between Governments that in respect of industry training this Government has had a clean-up. We have taken about $40 million out of that because thousands of people were getting no skills from it and we have put the money into other tertiary places. We have maintained the number of people who are in skills training. That is how that picture is going to unfold. It is part of a longer-term approach that the Government has taken to rebalance the economy and is reflected in the Budget Policy Statement. 
I hope the next speaker for the Opposition will at least demonstrate an understanding of where this economy went off the rails even if they continue to demonstrate Labour’s inability to put together the kinds of policies that will lead to sustainable and strong economic growth in a risky world. We have set out to rebalance the economy because growth under Labour was based on fast increases in Government spending and on excessive debt. That is what grew this economy particularly from 2004 onwards. That is where the 200000 new jobs came from—essentially from the Government sector and the construction industry. As it happens neither was sustainable. That is why all this Government’s policies for the last two Budgets have been and for the next one will be focused on shifting people capital and resources into savings investment and exporting. We will hold back on growth in consumption growth in the housing market and excessive growth in the Government sector. That is how we will get sustainable jobs. That process is being assisted by relatively high commodity prices—in fact very high prices. Unfortunately there have been some headwinds in the process: the Christchurch earthquake would be an obvious one and another would be the ongoing relatively high New Zealand exchange rate particularly against the US dollar the euro and the pound. 
We intend to continue with that plan and we have taken a pretty broad and considered approach. In fact we have picked up a number of the better policies that the previous Government had in place. We have continued for instance to increase the investment in research and development. That is just one example. On the other hand we have discarded other policies. We do not believe in an ineffective Public Service with very large back-office costs. We have shifted the focus to very effective front-line services and we are reducing back-office costs. All of this has to be seen in the context of a New Zealand that is one of the most indebted countries in the world where private sector debt household debt and Government debt have given us a proportion of total liabilities to foreigners that puts us up with Spain Portugal Greece and Ireland. So the focus of economic policy over the next 12 months has to be to absorb the effect of the earthquakes—both of them—plus the fact that households in New Zealand are grappling with reducing their debt and increasing their savings. That has meant flatter economic growth than was expected. We need to deal with both of those adverse circumstances without increasing our liabilities to foreigners. That would increase New Zealand’s vulnerability to all the kinds of problems we see playing out particularly in Europe but to a greater or lesser extent all across the developed world. 
We cannot put our long-term health as an economy and our long-term stability as a community at risk by taking short-term decisions that will push us in the wrong direction. The Government has said a number of times that it intends to absorb the effect of the earthquake in the initial stages through increased debt. That is unfortunate. Our overseas debt levels are already high. The Government in its own balance sheet can absorb that debt but we do not want it adding to New Zealand’s total vulnerability. Then we will work to reduce that debt over time. We will do that in a fair and balanced manner. I think that most New Zealanders understand those circumstances because the things the country is dealing with are exactly the same as New Zealanders are dealing with in their homes in their community organisations and in their businesses. We all have to cut our cloth to suit the new circumstances. We have to reduce debt. That is what the Government is doing and what families are doing. We need to be careful with our spending. That is what all organisations are doing what businesses are doing and what families are doing. That is what the Government is doing. We have to take a long-term view to see our way through these adverse circumstances that have arisen I would have to say a good deal more frequently than any of us might have expected. 
The Government is staying on course. The same issues that mattered before this earthquake matter now. The long-term structural weaknesses of this economy which were exacerbated in the last 5 or 6 years still have to be straightened out. The people of Canterbury want us to do both things at once—that is support them in the short term but also make sure that this is an economy where they and their children can rebuild their opportunities in the long term.