Goldsmith Paul: Questions for Oral Answer — Questions to MinistersText is incorporated into the Bound VolumeGoldsmith Paul: Questions for Oral Answer — Questions to Ministers[Sitting date: 13 March 2014. Volume:697;Page:16669. Text is incorporated into the Bound Volume.]1.PAUL GOLDSMITH (National)to the Minister of Finance: What recent reports has he received on the New Zealand economy?Hon STEVEN JOYCE (Associate Minister of Finance)on behalf of theMinister of Finance: The Reserve Bank this morning issued its latest Monetary Policy Statement. It confirmed that GDP growth has strengthened over the last 18 months and become increasingly broad-based. In addition to low interest rates the Reserve Bank Governor noted that growth had been supported by higher construction activity elevated terms of trade and higher levels of immigration. These conditions have contributed to very strong consumer confidence and increases in business investment and hiring intentions. The Reserve Bank is also forecasting strong growth in jobs over the next 4 years with seasonally adjusted employment growth of 3.5 percent 2.1 percent and 0.9 percent respectively over the next 3 years. It is within this context of a faster-growing economy that the governor confirmed that the official cash rate will rise by 0.25 percent taking it from a record low of 2.5 percent to 2.75 percent.Paul Goldsmith: How does the new 2.75 percent official cash rate compare with previous cash rate settings and what steps is the Government taking to ensure that interest rate increases are not as severe as they were in the mid-2000s?Hon STEVEN JOYCE: As I said the official cash rate has been at a record low of 2.5 percent since March 2011. As the Reserve Bank Governor has indicated many times it could not remain at this expansionary level for ever particularly as the economy picks up strong momentum. The new official cash rate of 2.75 percent is significantly below its record high of 8.25 percent which it was through much of 2008. The Government continues to support lower interest rates with its responsible fiscal policy and by addressing supply issues in the housing market. This has been good news for families who faced mortgage interest rates of nearly 11 percent back in 2008. A family with a $200000 floating rate mortgage has been saving about $200 a week compared with 5 or 6 years ago. If the official cash rate increases by 1 percent over the coming year this would be worth around $38 a week on that mortgage.Paul Goldsmith: What else did the Reserve Bank say about the economy in its latest Monetary Policy Statement?Hon STEVEN JOYCE: The Reserve Bank forecasts that the economy will grow at an annual pace of around 3.5 percent on average over the next year. It is a little higher than it forecast previously and would put New Zealand amongst the fastest-growing developed economies in the world. Nationwide construction spending is expected to rise to levels similar to the mid-2000s construction boom and to last for several years although housing market momentum appears to have moderated. Strong net immigration is expected to boost private consumption and the terms of trade are expected to remain elevated. This is all good news. The Reserve Bank expects this stronger economic outlook to support more jobs and to lower unemployment. It expects the unemployment rate to drop below 5 percent next year.Dr Russel Norman: Was Kim Campbell the head of the Employers and Manufacturers Association correct when he said this morning that these avoidable interest rate rises will lead to “mass closures” of businesses?Hon STEVEN JOYCE: With respect to Mr Campbell no. I think that that is a particularly dramatic and alarmist thing which we are used to hearing from the Opposition.Dr Russel Norman: With regard to the Minister’s comments about controlling inflation in the housing market is it not the case that Auckland’s house prices have increased by 44 percent over the 5 years of this Government; and does he believe that an increase of 44 percent in the Auckland housing market over the course of his Government is a sign of a successful policy to control house price inflation?Hon STEVEN JOYCE: I am advised by the Minister of Housing that in fact the figure for Auckland is around 26 percent and interestingly it contrasts with the period of the previous Government where Auckland house prices nearly doubled over that period. But the key point for the member is how you address that. The way you address that is by increasing the supply of housing something which this Government—Hon David Parker: Has it worked?Hon STEVEN JOYCE: Yes it is working well if you look at measures such as the building consents and so on. That is improving. What you do not do is restrict the supply of housing artificially because you have an ideological aversion to greenfield housing.Dr Russel Norman: Is it not the case that families will be paying more for their mortgages as a result of this Government’s failure to control inflation coming out of the housing sector and also as a result of the Government’s failure to control inflation coming out of the electricity sector as people all around the country are receiving letters from their electricity providers telling them that prices are increasing dramatically in the year ahead for some people by as much as 24 percent under the current settings of this Government?Hon STEVEN JOYCE: No I do not agree with the member. The simple reality is that if you look at the CPI projections of the Reserve Bank today the 2013 year was 0.9 percent 2014 is expected to be 1.7 percent 2015 is expected to be 1.9 percent and 2016 is expected to be 2.1 percent. These are a long long way from the high levels of inflation we saw under the previous Government. The primary way in which you control that inflation is to have responsible fiscal policies. Yes individual markets are important but if a member thinks that dealing with the housing market by not increasing supply and dealing with the electricity market by turning it into a monopoly purchaser would have any positive impact he is wrong.Paul Goldsmith: What reports has he seen on alternative approaches to economic and monetary policy and how would these impact on interest rates for New Zealand households?Mr SPEAKER: The Hon Steven Joyce in so far as he has ministerial responsibility.Hon STEVEN JOYCE: I have seen an alternative policy reported claiming that apparently you can go soft on inflation by tinkering with the Reserve Bank of New Zealand Act and that somehow this will keep interest rates lower for longer. The trouble with those sorts of approaches is that the prescription does not stand up to scrutiny particularly if you accompany it with much higher Government spending. History has shown that under Governments that go soft on inflation the people who are hardest hit are those on low and fixed incomes because their spending power does not keep up with the cost of living. Yet the very politicians who complain about the cost of living can now apparently approach a policy that would see them soft on inflation. That just does not make any policy sense. If you want to look after the vulnerable in society you control inflation.