English Bill: Questions for Oral Answer — Questions to Ministers 
English Bill: Questions for Oral Answer — Questions to Ministers 
[Volume:643;Page:12927] 
2.  
Hon BILL ENGLISH (Deputy Leader—National) 
 to the  
Minister of Finance 
: Does he agree with the Prime Minister’s statement: “if your surplus is structural as has now been conceded then you can start to address the dividend from a tax cut as well.”; if so does that mean tax cuts are only ever possible if there is a structural surplus? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 Yes; and unlike those members opposite we have always maintained that tax cuts can and should be delivered when it is fiscally responsible and they should not be funded by borrowing or by cuts in social spending. I note that in the latest  
New Zealand Investor 
 magazine once again Mr English commits himself to increased borrowing. 
Hon Bill English 
: Can he confirm the factual accuracy of the Prime Minister’s statement that it was only “in recent weeks” that he advised the Prime Minister that surpluses were structural rather than cyclical? 
Hon Dr MICHAEL CULLEN 
: Yes. If the member cares to look at the Budget 2007 forecasts he will see they show the surpluses coming back into deficit on a cash basis and the operating surpluses dropping. In other words Treasury was not forecasting structural surpluses of the size that it is now likely to be forecasting in December. 
Moana Mackey 
: Has he seen any reports opposing the Government’s four tests for tax cuts? 
Hon Dr MICHAEL CULLEN 
: The problem is that I am not really sure because the National Party has never publicly opposed any of the four tests but it has promised to borrow for tax cuts. It does not care about cutting social services it shows a pathological disregard for the inflation tests and it is fundamentally committed to increasing inequality. 
Hon Bill English 
: If the Prime Minister was advised only in recent weeks that surpluses were structural rather than cyclical why did it take him 8 years to pass on to the Prime Minister a quote from his own Budget Policy Statement of December 2000 which reads: “Projected operating surpluses are structural not just cyclical.”? 
Hon Dr MICHAEL CULLEN 
: Those are the operating surpluses not the surpluses that enable tax cuts to be made. The member is still living in a fantasy world where operating surpluses consisting of retained profits—investments in things like the New Zealand Superannuation Fund and the like—can be used for tax cuts. That is why he is quite explicit in the  
New Zealand Investor 
 magazine that he will borrow more. That is how he would pay for tax cuts. 
Gordon Copeland 
: Does the Minister agree that tax cuts can also be funded from expenditure reductions including for example private sector alternative mechanisms or the utilisation of the Crown’s exceptionally strong balance sheet to finance a higher proportion of capital in schools hospitals etc. through intergenerational debt or by asset sales if these actions improve cash flows? 
Hon Dr MICHAEL CULLEN 
: The notion of funding tax cuts from asset sales is about the worst possible idea that one could come up with because of course asset sales then reduce the assets on the balance sheet and remove the income flow for the future from that particular asset. Asset sales if they are ever to be contemplated by a future right-wing Government should be used for the payment down of net debt not used for current operating requirements. The argument that there should be much more long-term debt rests upon a fundamental error—that is long term there are more demands on the Government’s operating requirements not fewer because of course we face an aging population with increased demands in areas such as health. What that actually does is simply borrow from our children to fund our current consumption. 
Rt Hon Winston Peters 
: Has the Minister heard of the maxim that if one’s policy is to rob Peter to pay Paul then one can always guarantee there is a Paul and has he not heard reports of that as the basis of the relationship between the National Party and the Business Roundtable? 
Madam SPEAKER 
: The Minister cannot address the question on internal National Party affairs but the other part of the question was in order.  
Hon Dr MICHAEL CULLEN 
: I think the one thing that it is fair to say in the New Zealand context is that if robbing Peter to pay Paul is a fiscal policy then the Paul usually seems to end up residing offshore. 
Hon Bill English 
: In addition to the Minister’s Budget Policy Statement in December 2000 that operating surpluses are structural not cyclical did he show the Prime Minister a copy of the  
Beehive Bulletin 
 from 2001 which states: “Finance Minister Michael Cullen says the Crown statements show the Government is easily meeting all of its fiscal targets and is running a structural surplus.” or a copy of his Budget speech from 2001 which presumably the Prime Minister heard because she was sitting next to him which states: “Because revenues are trending above spending the structural surplus is rising.”? 
Hon Dr MICHAEL CULLEN 
: What the member does not seem to quite understand is that with the New Zealand Superannuation Fund—and of course he laughs about this because he really does understand; he is pretending not to—an operating surplus of about 3 percent or so of GDP has to be maintained if debt levels are not to rise. What is more given the earnings on that Superannuation Fund that 3 percent figure will tend to trend upwards over the next 10 to 15 years not downwards. Only structural surpluses well in excess of that give the room for revenue reductions or further expenditure increases. 
Moana Mackey 
: Has the Minister seen any reports on structural opposition to tax cuts? 
Hon Dr MICHAEL CULLEN 
: Well yes I have. When the National Party members voted against tax cuts for families that could be seen as a one-off. When they voted against the 2005 business tax reductions they could try to explain that away. But when they voted against the 2007 cuts to the corporate rate—[ 
Interruption 
]—members have to remember that I have the microphone; they do not—the research and development tax credits and the tax cuts for savers all in one go it became clear that National’s opposition to tax cuts is now structural in nature. 
Hon Bill English 
: Does the Minister stand by his statement of last year when the operating surplus was $11.5 billion and his own definition of the surplus was $8.7 billion—both larger than projected this year—in which he said: “anybody who thinks there are large fiscal surpluses to be spent now by means of large tax reductions should be taken out and quietly drowned.”—and is David Cunliffe going first? 
Hon Dr MICHAEL CULLEN 
: No he will carry on running his own show in that respect. The member needs to look at Budget 2006 and Budget 2007. In both years Treasury was forecasting substantial reductions in the surpluses in out-years. It has had it so far wrong over the last 2 years that the cash surpluses have been a total of more than $7 billion above what it forecast. 
Hon Bill English 
: Given that in almost every year there has been a structural surplus—and Helen Clark has found that out apparently only in recent weeks—what is now the Minister’s definition of structural surplus; is it one that means “a number that I can tell the Prime Minister so she can give tax cuts in election year”? 
Hon Dr MICHAEL CULLEN 
: As the Prime Minister made clear in the speech to the Labour Party conference I will be delivering the tax cuts next year as the Minister of Finance. I go back to remind the member of two points. Firstly a structural surplus of at least 3 percent of GDP is required to avoid debt rising as a proportion of GDP. The National Party is clearly committed to increasing debt as a proportion of GDP—that is borrowing from our children to fund current consumption. The second thing is that Treasury has been continously forecasting that growth will fall away and that the operating surpluses will decline. Treasury is now beginning to indicate that it believes there is a shift in the forecast surplus. That shift is not consistent with meeting the Government’s underlying debt targets.