English Bill: Supplementary Estimates — Imprest Supply Debate 
English Bill: Supplementary Estimates — Imprest Supply Debate 
[Volume:673;Page:19517] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the Appropriation (2010/11 Supplementary Estimates) Bill and the Imprest Supply (First for 2011/12) Bill be now read a second time. 
 These pieces of legislation are further steps in the ongoing supply from Parliament to the Government consistent with the Budget that passed through this House in the last couple of months.  
I think we are at a stage of recovery whereby without overstating it there is some confidence that the events of last year will not be repeated. By that I mean both the unexpected natural disasters and the growth that started in early 2010 but faded somewhat over the second half of the year. Those events will not be repeated.  
It does us some good I think to keep in mind the factors that are positive for the growth of the economy over the next 2 or 3 years. By the growth of the economy I mean in pretty straightforward terms the prospects that people who do not have a job will be able to get one and that people who do have a job will be able to get a pay rise and the sense that the country will be better off. Some of those positive features include the lowest interest rates in 45 years. It has been the express goal of the Government to do what it can to keep interest rates lower for longer on the basis that that will assist with the recovery of the economy and that it will mean less pressure on the Reserve Bank to raise interest rates with an indirect flow through to an even higher exchange rate.  
The second positive factor is the strong export prices that the country is enjoying. There is no doubt that more people appear to be willing to pay more for more of our products than at any time probably in the last generation. New Zealand finds itself hooked to the China-Australia train. Australia is our biggest export market and the growth of its economy has been driven significantly by demand for its iron ore and coal. A lot of that demand is sourced from China. China is moving to become our second-biggest market independently of Australia and is buying from us a different range of products than Australia does. It looks as if there is reason to believe that those prices could stay at reasonably high levels. It would be a surprise to anyone I think if commodity prices stayed at their current very high levels. Equally I think it would be a surprise if they returned rapidly to the levels of 2 or 3 years ago. So stronger export prices will assist the ongoing growth of the economy.  
Another favourable factor is the policies that the Government has followed over the last three Budgets which lay down the platform for stronger economic growth. I refer to two policies in particular because they are consistent with the single plan that the Government has followed across the last three Budgets.  
The first policy is a high level of investment in infrastructure. Despite the global financial crisis and New Zealand’s recession this Government committed early to extensive investment in productive infrastructure and it has held to those commitments because infrastructure investment is long term; its benefits are long term. In the short term that programme has helped to deliver thousands of jobs to New Zealanders particularly in the construction sector which has otherwise fared very badly through this recession. In fact the Government order book has seen something like 80 to 90 percent of non-residential construction in New Zealand over the last 2 or 3 years. That infrastructure investment continues now with the roll-out of ultra-fast broadband which will deliver in the next 2 or 3 years to many businesses and households and certainly to all schools broadband speeds equivalent to those that currently apply in Singapore. I must commend the effort made by officials and Ministers in bringing together that particularly challenging commercial transaction. The infrastructure investment programme will continue.  
The other longer-term change that the Government has made that I will mention is the changes to the tax system. We have followed some pretty simple principles here. Things that are not so good for the economy are taxed more; things that are good for the economy are taxed less. So we have put up the taxes on consumption and the effective tax rate on investment property. At the same time we have closed a number of loopholes in the tax system particularly those applying to banks and companies. Alongside that we have dropped income tax rates tax on savings vehicles and the company tax rate. There has been some ill-informed media commentary that the tax changes “haven’t worked”. Well the last step in the changes was implemented only on 1 April this year which as I recall was only 10 or 12 weeks ago. It is unlikely that a change designed to bring about a shift in the incentives in the economy with benefits over 5 to 7 years would have had dramatic impact in just a matter of months.  
We are now in a situation where we have a sound tax system and where 73 percent of New Zealanders now have a top statutory tax rate of 17.5c so the incentives for anyone including people who are on lower incomes to work another hour or to save another dollar are simply better than they were. Those tax changes are consistent with the general thrust of the Government’s rebalancing of the economy. Those are a number of positive factors and there are others.  
There are of course some headwinds and I will refer to the challenges to economic recovery. Some are shorter term and some are longer term. In the shorter-term category I would put the headwind of the high exchange rate. There is no doubt that that has put pressure on particularly our import substitution industries. Our commodity exporters have been compensated through high prices for the high exchange rate but our import substitution industries do not get that benefit and they have been particularly affected by it. A second headwind is simply the business of reducing debt. The story of economies in the developed world for the next 10 to 15 years will be about reducing debt which reached very high levels including here in New Zealand. That will make people cautious. We will not see the burst of credit growth or the spurt in the housing market that has traditionally picked up this economy.  
Related to that will be constrained growth of credit or restrained growth of lending. If we look back over New Zealand’s history over the last 20 years we will see that lending—or borrowing; whatever we want to call it—has grown significantly faster than the economy through most of the last 20 years. The world is now sending us a message that that cannot continue. It will be quite a challenge because from here on we will have to earn our higher incomes and greater wealth; we will not be able to borrow it from the world. Borrowing has been a significant source of growth in wealth and incomes in particular over the last decade.  
Having listened to the Budget debate and toured the country through the time of the Budget I am impressed with the resilience that many New Zealanders have shown. Gail Kelly the chief executive of Westpac last week here in Wellington contrasted the positive and resilient attitude of New Zealand to the economic challenges with the somewhat less positive attitudes that are now prevalent in Australia. I would expect that over the next few years we will begin to close some of that gap.