Questions for Oral Answer — Questions to Ministers 
Questions for Oral Answer — Questions to Ministers 
[Volume:656;Page:5307] 
Questions to Ministers 
Economy—Reports 
1. Hon DAVID CUNLIFFE (Labour—New Lynn) 
 to the  
Minister of Finance 
: What reports has he received on the New Zealand economy? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I have seen reports that a combination of a global recession and a decade of economic mismanagement has left New Zealand with very large fiscal deficits and a weakened export sector. That will present significant challenges in getting this economy on the road to recovery but there are some interesting signs such as the National Bank’s  
National Business Outlook 
 survey this week which shows increasing business confidence. 
Hon David Cunliffe 
: Does he agree with the Reserve Bank governor’s statement today that “The level of the dollar in particular is not helping the sustainability of future growth and brings with it additional economic risks” and with the statement from the Manufacturers and Exporters Association that “High interest rates hurt the real economy put upward pressure on the exchange rate and put more jobs at risk.”? 
Hon BILL ENGLISH 
: I do agree with the view that for New Zealand to have a sustained recovery based on a stronger export sector will be a challenge with the dollar at the current levels. But I imagine that that member will not try to make a political point about that because it is precisely record-high interest rates and a record-high dollar driven by the previous Government’s reckless economic management that have put the export sector into such a difficult position. 
Amy Adams 
: What other reports has the Minister received on the economy? 
Hon BILL ENGLISH 
: I received a report that the Opposition’s recession response package is still on its way. The early indications though are that it will remove means testing for social welfare raise the age of New Zealand superannuation eligibility and spend a lot more public money on things that do not work. 
Hon David Cunliffe 
: Does the Minister agree with the Reserve Bank governor when he said that: “the forecast recovery is based on a further easing in financial conditions. If this easing does not occur the forecast recovery would be put at risk. In these circumstances we would reassess policy settings”; if so does he consider that the failure by banks to pass on cuts to the official cash rate could constitute just such circumstances? 
Hon BILL ENGLISH 
: I think that would be a very marginal influence on financial conditions. The fact is that what will drive recovery in the short term is a very substantial drop in interest rates in New Zealand—in fact it is the largest cut in the official cash rate in the developed world—along with Budget 2009 which has pumped around $3 billion of Government money into protecting people from the sharpest edges of the recession. But in the long run neither of those is sustainable and we will have to shift from borrowing and consumption to investment and exporting. 
Hon David Cunliffe 
: Why does the Minister consider that the pass through of cuts to the official cash rate through the financial system would be of only “marginal” relevance to policy settings when the official cash rate is the primary indeed only instrument of monetary policy used to control inflation and credit conditions? 
Hon BILL ENGLISH 
: I was referring simply to the issue that the member has raised a number of times and that is the issue of the pass through from the official cash rate to the floating mortgage rate where as I think we have agreed there are some questions as to whether banks have passed through enough. But the larger picture is that the official cash rate cut from the peaks under that member’s Government to what it is now is one of the largest in the developed world and many New Zealanders are enjoying the benefits of lower interest rates. 
Dr Russel Norman 
: Does the Minister agree that the high interest rate - high exchange rate reality we find ourselves in is driven in part by the Reserve Bank’s concern to keep the lid on house price inflation; and hence will he adopt measures that specifically target potential inflation that could come out of a housing bubble rising again? 
Hon BILL ENGLISH 
: I think members on all sides of Parliament would share a concern that New Zealand does not head off down the track of another housing bubble. As the Government has indicated before we are quite happy to see an open debate about what measures might assist the Reserve Bank governor to avoid the situation that occurred over the last 3 or 4 years. 
Hon David Cunliffe 
: If the Minister is happy to have that debate and in light of reports that the Bank of New Zealand has cut its bank fees by up to $25 million per year and given estimates that similar fees across the sector amount to some $100 million per year will he now allow Government members to participate in the banking inquiry in order to encourage other banks to follow suit? 
Hon BILL ENGLISH 
: We welcome that move by BNZ because it proves the point that the Government has been making for a number of months—that is the power to change banks’ behaviour lies primarily in the hands of their customers. I hope that BNZ will enjoy the benefits of customers putting pressure on other banks to go down the same path. 
Dr Russel Norman 
: Does the Minister agree that part of the reason for the housing bubble is the way that housing investment is treated under the taxation system; would he therefore support a reconsideration of the taxes around capital gains tax excluding the primary family home and also ring-fencing the losses around investment properties so that we can change the incentive structure created by the taxation system which contributed to the bubble at the heart of a lot of the problems in the New Zealand economy? 
Hon BILL ENGLISH 
: I would not want to prejudge any position that the Government might take other than to say we have indicated publicly that the advice from Treasury and the Inland Revenue Department is to go down that track. We have said they would find it hard to win an argument with us about that. Nevertheless the Tax Working Group that the Government has set up with Victoria University will be canvassing those issues and we welcome further debate on them. 
Question time interrupted.