Hughes Darren: Financial Review Debate — In Committee 
Hughes Darren: Financial Review Debate — In Committee 
[Volume:637;Page:7905] 
DARREN HUGHES (Labour—Otaki) 
: 
 It is a great time to be speaking for the Government on this side of the debate. From the end of 1999 when the Labour-led Government came to office we have been growing at an average annual rate of 3 percent. That is faster than the average of the developed countries that we like to compare ourselves with. We are growing faster than Europe Japan the US and the UK and as fast as Australia. In fact the New Zealand economy is a quarter larger today than it was in 1999. 
We also have one of the lowest levels of unemployment in the OECD and despite the usual innumerate claims from members of the Opposition this is not due to people shifting beneficiaries around to different categories but because the absolute number of those on benefits has fallen dramatically since those members were last in power. Unemployment is now at levels that Mr Bill English once said would be unachievable. 
Although we have strong growth which we are debating in this debate through increased prosperity throughout the country there are obviously challenges on the horizon. The domestic economy has performed persistently much stronger than the export sector and we are seeing the evidence of that in a current account deficit making up nearly 10 percent of GDP. One of the reasons for that I believe is that households are not saving enough. 
Saving is a hugely important issue. Despite the Reserve Bank highlighting New Zealand’s poor savings rate in last week’s Monetary Policy Statement this has received little focus in the ensuing discussions including in the contributions from the Opposition in the House today. The Reserve Bank report in the Monetary Policy Statement notes that household savings rates are currently running at minus 17.5 percent which means that for every dollar a New Zealand family earns it is spending $1.18. The Reserve Bank describes this as dissaving and notes that the current rates of household dissavings are unsustainable. 
This dissaving is fuelling consumption and it is a major driver behind the Reserve Bank’s decision to increase interest rates last week and of course as we know the export sector suffers most of the burden when those interest rates go up. The resulting higher exchange rate makes exports less competitive and businesses have to pay more for capital but it is not the export sector that is forcing these increasing inflationary pressures. 
The Government through fiscal policy has an important role to play in supporting monetary policy as well. To put it bluntly there is no point in cutting taxes or in increasing spending in major ways if it results in higher mortgage costs or even in an inflationary spiral. Even Bill English managed to realise this when he stated that it is not a time to give away extensive tax cuts. 
Of course that is not what Bill English said in the Chamber this afternoon. Unfortunately he did not get around to telling John Key this because the very next day they were once again contradicting each other proving once again that it is not a very happy time to be in the National Party. Mr Key is one of those who believe that every time the Government’s cash surplus is updated the Government can simply spend its cash reserves. Mr Key usually calls for the Government to reduce its operating surplus while at the very same time on the very same day Mr English blames the Government for spending too much money—in effect calling for larger Government surpluses. There is a word for that of course. 
Holding these kinds of mutually contradictory positions might be OK when one is in Opposition but it is not a privilege we have while in Government. So the Government is trying to be active on a range of fronts to take the pressure off this monetary policy increase the savings and develop our export sector. Cash surpluses have been used to pay down debts steadily. Gross debt is now around 20 percent of GDP and we no longer carry any net debt at all—something I think New Zealanders should be very proud of when we take into account the New Zealand Superannuation Fund. It is the first time since we have had responsible Government in New Zealand that this has been achieved. 
New Zealand has better public finances than nearly all the OECD countries. According to Standard and Poor’s due to our strong fiscal position and the Superannuation Fund we are one of the best-prepared nations when it comes to dealing with the challenges that will come from an ageing population which obviously the Government is very concerned about as well. The Superannuation Fund will ease that pressure on Government finances into the future. 
We are trying to boost the savings rate with the introduction of KiwiSaver as Mr Jones mentioned which is a unique voluntary workplace-based savings scheme for all employees. The introduction could hardly be better timed given the Reserve Bank’s warning about household dissaving and the need to manage domestic demand pressure across the economy. I believe that this will be historic legislation as workers are asked to set aside either 4 percent or 8 percent of their incomes into KiwiSaver. 
Its unique feature is that it has automatic enrolment. With 700000 people starting a new job each year one would like to think that over the course of time that will be a catalyst to embrace KiwiSaver across the economy—particularly with the $1000 contribution as part of the card commitment that Labour gave at the last election. There are very strong incentives for young people to join at the beginning of their workforce life so that they can build up a strong savings habit which of course will multiply their benefits in later life. By making employer contributions tax exempt we are making it even more attractive for workers and for employers to see this as a positive economic tool in order to boost the New Zealand domestic economy and to make things easier across the export markets. KiwiSaver will deepen the pool of capital available for development manage domestic demand pressure and increase our household savings rate. KiwiSaver should help to take the pressure off our export sector and also off interest rates.