Bakshi Kanwaljit Singh: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeBakshi Kanwaljit Singh: Oral Questions — Questions to Ministers[Sitting date: 23 July 2015. Volume:707;Page:5273. Text is incorporated into the Bound Volume.]2.KANWALJIT SINGH BAKSHI (National) to the Minister of Finance: What reports has he received on dairy prices and their effect on the New Zealand economy?Hon BILL ENGLISH (Minister of Finance): Members will have seen the results of the recent dairy auction: international dairy prices are now around 40 percent lower than the recent peak in early March and there are indications they could fall further. For the dairy sector of course times are turning out tougher and perhaps for longer than industry experts were forecasting and more than the Government was forecasting earlier this year. The dairy sector makes up 5 to 6 percent of the economy taking into account associated service industries so obviously a fall in prices of this magnitude on a sector that makes up around 20 percent of exports is going to have a flow-on effect on economic growth.Kanwaljit Singh Bakshi: How is the fall in dairy prices impacting on other sectors of the economy?Hon BILL ENGLISH: As I mentioned lower dairy prices will obviously impact on businesses with links to the dairy sector. It is somewhat mitigated by the fact that dairy farmers still have to spend a certain amount of money to achieve their output. Unfortunately some of that spend in the next 12 months will be financed by debt rather than by revenue. Offsetting this somewhat is the recent fall in the exchange rate. The exchange rate is down around 25 percent against the US dollar compared with this time last year. That of course will support all exporters by softening the impact of lower prices on the dairy industry but underwriting more profitability for other export sectors like meat and wool horticulture information and communications technology and tourism—all of which are doing well and whose competitiveness has been strengthened by the lower dollar. An important continued part of the success of the export industry are our free-trade agreements with Taiwan for instance and we expect significant benefits from the free-trade agreement with Korea which we hope to have in place this year.Kanwaljit Singh Bakshi: How does the resilience of the New Zealand economy compare with when the Government first came into office in 2008?Hon BILL ENGLISH: Of course New Zealand is always going to be subject to international pressures because we are a small open economy. However we have become a fairly resilient one. Alongside the automatic adjustments of flat to lower interest rates and the lower exchange rate that I mentioned earlier New Zealanders have been strengthening New Zealand’s balance sheet. The household savings rate is now positive consistently for the first time in 25 years offshore debt has reduced by 20 percent of GDP since 2009 the net international investment position has improved from minus 85 percent of GDP to minus 64 percent of GDP the current account continues to outperform forecasts—currently sitting at 3.6 percent of GDP—and of course the Government is heading towards surplus and the beginning of paying off its own debt.Ron Mark: If the Minister believes what he has just told the House—that auction prices are down 40 percent and that they could fall lower and those prices could remain low for considerably longer—Mr SPEAKER: Can I have the question please.Ron Mark: —why does he believe that it is economically sensible for his Government to block dairy exports to the world’s second-largest dairy importer that being Russia when our rural and provincial communities are in such dire straits or are they expected—Mr SPEAKER: Order!Hon BILL ENGLISH: It is not absolutely clear that a change in the situation in Russia would make a material difference to the current dairy prices but ongoing discussion with a range of nations trying to deal with the challenging behaviour from the Russian leadership will continue when there is an opportunity for dairy exports to resume there and I am sure that opportunity will be taken.Kanwaljit Singh Bakshi: How does the forecast of New Zealand’s expected economic growth compare with the growth in previous years?Hon BILL ENGLISH: New Zealand’s economic growth over the last 4 years averaged 2.6 percent per year. The Reserve Bank said today that the growth outlook is now softer than it expected in its last forecast 6 weeks ago but I would note that those last forecasts included a substantial reduction in dairy prices but still projected a growth of around 3 percent for the next couple of years. I expect the Reserve Bank will update its forecasts in another 6 weeks’ time. So although expectations of growth may be coming back a bit from recent forecasts low interest rates higher construction activity and high net immigration indicate that we are on track for solid moderate and sustainable growth for New Zealanders which will underpin more jobs and higher incomes.