McClay Todd: Questions for Oral Answer — Questions to Ministers 
McClay Todd: Questions for Oral Answer — Questions to Ministers 
[Volume:665;Page:12744] 
3. 
TODD McCLAY (National—Rotorua) 
 to the  
Minister of Finance 
: What reports has he received showing progress in turning around the New Zealand economy? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I have received a number of reports. It is important to remember that in 2008 the Government inherited an economy that was already in recession from early 2008 before the rest of the world and that then had a further deepening of that recession because of the global financial crisis. In the 3 years to 2008 per capita incomes in New Zealand dropped by 0.5 percent per year. By comparison other economies similar to ours—such as the Australian and US economies—saw per capita incomes rise. We have a very substantial turn-round job to do to lift incomes in New Zealand and to rebalance this economy towards exporting and earning rather than spending consumption and excessive Government spending. 
Todd McClay 
: How has the economy performed over the past year and how is this reflected in per capita income? 
Hon BILL ENGLISH 
: We would not expect a rapid turn-round after so much damage was done in the previous decade of economic management. Statistics New Zealand states that annual GDP growth has now reached 1.9 percent; per capita GDP increased 0.6 percent in the latest March quarter compared with a year earlier. That is a 0.6 percent increase compared with the 0.5 percent decrease that we saw for 3 years in a row from 2005 to 2008. It is also worth pointing out that average wages in New Zealand were distorted through the latter period of the Labour Government by very substantial increases in public sector wages. Those kinds of big annual increases are clearly unsustainable. We will now have to lift incomes with real increases in wealth through our export sector not through pumping up Government spending. 
Hon David Cunliffe 
: Which of his reports suggests that he supports the Prime Minister’s expectation that New Zealand would grow aggressively out of the recession or does he now think that that prediction was wrong given that New Zealanders’ incomes are falling further behind Australia’s? 
Hon BILL ENGLISH 
: There is a rather different situation in the two countries because of the mismanagement of the previous Government. New Zealand had a recession and Australia did not and we are now trying to repair the significant damage done by a recession and a fall in per capita incomes engineered by the previous Labour Government. As the Prime Minister said I suspect that that will take some time. 
Hon David Cunliffe 
: Does he agree with  
Business Week  
that the likely increase in the official cash rate tomorrow results in part from his policies to raise GST which will flow through to price and wage expectations? 
Hon BILL ENGLISH 
: No I do not because the Governor of the Reserve Bank has been quite explicit that the Reserve Bank has the power to look through one-off pressures on inflation like the increase in GST. Of course New Zealanders will be better off because the reduction in their income tax rates from 1 October is significantly larger than the increase in GST. 
Todd McClay 
: How will the Government’s tax package on 1 October further improve the take-home income of New Zealanders? 
Hon BILL ENGLISH 
: The tax package will leave someone on the average wage about $15 a week better off after taking account of the increase in GST and an average family will be about $25 a week better off after taking account of GST. Under the changes on 1 October 73 percent of all New Zealand earners will face a top statutory tax rate of 17.5 percent—that is everyone who earns up to $48000 will have a statutory tax rate of 17.5 percent. We believe that this is vital to the incentives for New Zealanders to get ahead because after all many New Zealanders are aspirational and would like to raise their incomes. They have a Government that recognises that. 
Todd McClay 
: What impact will the tax package have on New Zealand’s competitiveness with Australia? 
Hon BILL ENGLISH 
: There are any number of ways of measuring competitiveness with Australia. Before this tax package on a straight dollar-for-dollar basis all Australians earning up to $228000 a year were paying less tax than New Zealanders on comparable incomes. From 1 October that figure reduces to about $55000. In other words all New Zealanders earning more than $55000 a year will be paying less tax than Australians pay on the same income. Our company tax rate will also be more competitive because our 28 percent tax rate which takes effect from the 2011-12 year will be 2c lower than Australia’s for 2 years and then 1c lower permanently depending on whether the Australian Government maintains the position it has currently taken on company tax.