English Bill: Appropriation (2009/10 Estimates) Bill — Third Reading Imprest Supply Debate 
English Bill: Appropriation (2009/10 Estimates) Bill — Third Reading Imprest Supply Debate 
[Volume:656;Page:5905] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the Appropriation (2009/10 Estimates) Bill be now read a third time and the Imprest Supply (Second for 2009/10) Bill be now read a second time 
. The passage of the appropriation bill and the Imprest Supply Bill through Parliament signals another step in the parliamentary administrative process which on the face of it is pretty simple. But these bills underpin a process where the incoming Government is trying to get hold of the momentum of Government spending to wring some productivity and effectiveness out of it and to work with the reality that on current forecasts for the next 10 years the New Zealand Government will be showing deficits. I think those forecasts should be taken reasonably seriously. Although we have seen a lift in confidence among businesses and consumers and although we have seen commentary about green shoots in the recovery it would be a brave economist and I think a brave politician who would see our path over the next few years as a smooth path of sustainable recovery—that is possible but it is not very likely. When we have events of the scale of the global financial crisis alongside the most coordinated world recession since the 1930s it is unlikely that all the consequences will wash through the international economy or the domestic economy in just 9 or 12 months. The road to recovery is likely to be somewhat twisty with a few rocks along the way. 
These bills underpin a process going on in that context. Over the last 5 years this economy has become quite significantly unbalanced. Some of the work we have done shows just how far it has become unbalanced. If we look at what has happened to GDP going back to 2004 we see there are some pretty interesting statistics about the rate of change. The tradable sector which is the export sector and tourism largely has actually shrunk by around 10 percent since 2004. Further analysis shows that in the last 10 years that tradable sector—which is the income-earning sector of the economy—has not had any growth in terms of jobs. Within that tradable sector service exports are down 13 percent. Manufacturing is down 16 percent in the last 5 years. The primary sector has grown a bit—around 2 percent—despite the fact that we went through a cycle of very high commodity prices. Over that time GDP grew and it is now 7 percent larger than it was in 2004. 
What has actually grown in this economy is the non-tradable sector. That is the part of the economy that does not compete internationally and it includes the Government domestic construction and quite a lot of our services such as restaurants. The non-tradable part of the economy has grown by 15 percent in the last 5 years and within that the Government part of it grew by 32 percent. Here we have a pretty stark picture of imbalance in the economy: the export sector shrank by 10 percent and Government administration grew by 32 percent. Over the next 5 years that simply cannot happen for the very simple reason that to maintain the rate of increase in Government spending that applied over the last 5 years New Zealand would have to borrow at an unsustainable level. It is no different from a household budget. Over the last 5 years Government revenue has grown at half the rate of Government expenditure: Government revenue grew at 25 percent; Government expenditure grew at 50 percent. No company no business no Government and no household can grow its expenditure at twice the rate of its income. It is not a matter of ideology or politics. Over the next 5 years that simply cannot keep going. The reason is not that it would not suit most people; it is just that to finance that rate of Government expenditure we would have to borrow a very large amount of money and the world may not be willing to lend it to us. 
In the last Budget the Government took a number of steps to limit the amount of borrowing it would have to do. Even with the steps taken in the last Budget Government debt will more than double over the next 4 years. The New Zealand Government will borrow around $40 billion in that time; the current stock of Government debt is about $34 billion. That means that the Government has to pay a good deal of attention to getting value for the taxpayers’ dollars and there are a few high-profile examples of where that will be a challenge. One example is the accident compensation scheme. The accident compensation scheme system is run through levies. People pay levies and those levies are likely to substantially increase because the previous Government expanded the coverage and held the levies down. The moment of truth has now arrived. But there is one account—the non-earners account which is for people such as older people who fall over and break their hip—that the Government finances directly. When we came into office we discovered that there was a hole in that account of $300 million a year. Over the fiscal forecast period that represents $1.2 billion. Well the bad news is that the hole is a lot bigger than we thought. It is now about $420 million a year which over the forecast period represents $1.7 billion of unexpected expenditure. That is the scale of the problem this Government has to deal with. 
All the fiscal momentum that was built up under the previous Government has created a high level of public expectation. Our revenue has dropped considerably and although in the short term there is a benefit to the economy because of the stimulus effect of that increased expenditure in the long run it is unsustainable. I challenge Opposition members to argue that it is sustainable. I do not think it would help their credibility very much if it did— 
Dr Cam Calder 
: What credibility? 
Hon BILL ENGLISH 
: That is a good question. When we listen to Opposition members we find that for each and every decision the Government makes they claim that more money should have been spent. Well more money being spent means more borrowing from a world that is being fairly careful about whom it is lending to. 
The Government is working assiduously with the public sector and I must say that the leadership of the public sector has shown a ready willingness to get to grips with the new realities. It is not just getting to grips with the new Government as it is part of the professionalism of the leadership of the public sector to handle a change in Government; probably the bigger change is the change in the fiscal outlook. In health for instance it is simply not tenable that health expenditure can grow at 8 percent per year. It just cannot keep going. That is just a matter of fact and fortunately the leadership of the health sector is starting to get a realistic grip of that fact. Right through our discussions with the public sector we aim to provide improved services for the public. That will mean sorting out priorities and making decisions based on those priorities. The fact is that some things matter more than others. Where there has been low-quality and ineffective expenditure we will need to reallocate that money because there are still plenty of high-priority needs in our community and sometimes in a recession those needs grow. But I think we need to be straightforward about the need for that prioritisation and the will of this Government to do it. 
We are heading out to rebalance the economy after 10 years of economic mismanagement—10 years of too much borrowing and too much spending. The next 10 years have to be about saving investing exporting and reward for effort and these bills indicate some of the decisions that the Government is making to achieve that.