English Bill: Address in Reply 
English Bill: Address in Reply 
[Volume:652;Page:1151] 
Hon BILL ENGLISH (Deputy Prime Minister) 
: 
 As we work through the Address in Reply debate it has become clear that the state of the economy and the outlook for the economy have become the major issues that the New Zealand Government has to deal with. The Government has made its strategy quite clear. We are setting out to achieve two things over the next few years. The first is to protect people from the hard edge of recession and the second is to get this economy ready for recovery. That means that any of the decisions we take in the short term to assist people through this recession need to be consistent with our long-term objective which is to get the economy ready for recovery. Only an economy that recovers quickly will be able to generate jobs to replace the jobs that are being lost and return New Zealand to a path where its incomes are rising. 
In pursuit of those objectives the Government has instituted a range of measures starting with the Restart package and a bundle of legislation before Christmas to support people who were made redundant through to the tax cuts that are going to be implemented on 1 April to put money in people’s pockets. There has been a sense among New Zealanders that the effects of the worldwide recession have not reached them but 2009 is the year when those effects are going to wash up in New Zealand. We do not know just how severe the effects will be. One thing that accounts for the fact that people have not felt squeezed by the recession is that there has been a succession of events over the last 6 or 8 months that have had the effect of putting more cash in people’s pockets. This is part of the debate about whether the stimulus in New Zealand is comparable to that being applied in Australia and the US. 
Let me just take members through the basics of the New Zealand story. New Zealand went into recession 12 months earlier than most other economies. We had a recession starting in January 2008 that was a product of quite a different set of circumstances from those that existed prior to the financial crisis and the coordinated world recession. Those circumstances included a high-inflation economy that was running out of capacity and that was driven by misdirected and complacent policy undermining the productive capacity of New Zealanders. So we started in that recession. 
At the same time there was considerable debate about tax cuts and a good deal of pressure on a fading Government that was reaching for taxpayers’ pockets to try to spend its way through to a successful 2008 election. So the 2008 Budget was quite a big-spending Budget which came on the heels of two previous even bigger-spending Budgets. It also included the previous Government’s tax cut programme. That amounted to a significant stimulus to the economy that started flowing through about the time of the financial crisis in the US in September and October. As the incoming Government we instituted our own tax cut package before Christmas which will result in significant tax cuts on 1 April and an ongoing programme with lesser tax cuts in the next 2 years. 
When we add all those things together the reality is that by the time the incoming Government was presented with the effects of the financial crisis it had fewer opportunities than say the Australian Government to have a sugar punch—a one-off cheque-writing exercise to put money in people’s pockets. But we have taken what opportunities we had and we had fewer opportunities because the previous Government had already reduced taxes and increased spending. The net effect of all that though is that the stimulus in the New Zealand economy is among those of the top half-dozen countries in the OECD. Treasury calculates that over the next 2 years—this is the most recent calculation—the effect of the fiscal stimulus will be 5.1 percent of GDP. That is directly comparable to the fiscal stimulus of the US and is in fact more than the Australian fiscal stimulus on the best measure we can make of it. 
Of course a discussion about fiscal stimulus is inherently short term. We can easily forget as most do that any dollar spent today stimulating the economy has to be repaid with interest tomorrow. This Government has worked hard to strike a careful balance between what it can do in the short term to protect New Zealanders from the sharpest edges of recession and the burden of repaying the bill for that in future years. I will just give people some sense of the size of that bill which should I think engender some caution in their calls for more fiscal stimulus. For instance the operating balance—we can go into all the definitions but it is essentially the operating balance—of the New Zealand Government for 2007-08 was plus $5.6 billion. In 2008-09—the year we are in—it will be minus $1 billion. In 2009-10 it will be minus $6 billion and in 2010-11 it will be minus $8 billion. That is a huge swing-round in the large surpluses that New Zealand has experienced over the previous 10 years. In fact over the next 3 years we will see the operating surplus turn around in total by about $14 billion. It will go $14 billion backwards. 
That of course will flow through into the amount of debt that New Zealand incurs and the amount of debt it will have to raise. Our best estimate of the net amount of debt the New Zealand Government will have to raise over the next 3 years is around $35 billion. That is a dramatic change in outlook. The record over the last 15 or so years has been of significant decreases in gross debt even of getting to the position where New Zealand had positive net debt. Not much debt was paid off but financial assets were significantly increased. Over the next few years we will have to raise very significant amounts of debt and we will be out there raising that debt in the context of every other Government in the developed world also trying to raise debt. In the case of the US we are talking at the bare minimum of a trillion dollars perhaps of a trillion and a half—who knows—but a vast amount of capital will be sucked back into Government coffers. So we have to make decisions now that keep in mind that with the current settings growth outlook and expenditure trap New Zealand Government debt will consistently rise over the next 10 years from its current levels of somewhere under 20 percent of GDP to somewhere in the region of 50 to 60 percent depending on how one calculates it. That is a huge challenge for the Government; I might say it is a challenge for Parliament. It is also a challenge for this country but we are satisfied that at the moment we have the right balance between those contending pressures. 
A particular focus will be on jobs and I point out to the House that the number of people on the unemployment benefit is starting to rise reasonably significantly. Every forecast tells us that unemployment will rise quite significantly over 2009. We start from a position of lower unemployment than almost any developed country and it is certainly the hope of the Government that we will get through this recession without unemployment reaching the double figures it did particularly in the recession of the early 1990s. I expect that these matters will be discussed in some detail at the job summit at the end of February where the intention is not just to have a discussion about what policy measures the Government might take to mitigate unemployment but also to have a discussion about what role the private sector can play in containing unemployment. Many New Zealand businesses have experienced skill shortages in recent years and we believe as many of them believe that it is vital through this period to retain those skilled people so that we do not run again in a fast-growing economy into skill shortages when so many people have been lost from the workforce. Managing the fiscal and economic outlook will be by far the biggest challenge for the Government this year but it is one that this Government is up to.