English Bill: Debate on Prime Minister’s Statement 
English Bill: Debate on Prime Minister’s Statement 
[Advance Copy - Subject to minor change before inclusion in Bound Volume.] 
Hon BILL ENGLISH (Deputy Prime Minister) 
: 
 In the House yesterday the Prime Minister outlined the next steps in the Government’s programme to get the economy on track to strengthen it and to raise incomes. All of us need reminding every now and again of the scale of the change and adjustment that the New Zealand economy needs to go through and we are by no means alone. Most of the countries that followed the same policy prescriptions as New Zealand over the last 10 years have found themselves in the same position. 
I will use for example the discussion about debt levels because there will clearly be an important public debate this year between the Government’s interest in getting New Zealand’s debt— 
Hon Lianne Dalziel 
: Talk about public debt. 
Hon BILL ENGLISH 
: —and Government debt down and the Labour Party which takes a different view. Labour seems to think that if debt is cheap then we should have endless amounts of it. 
The average household in New Zealand owed $61000 in 2003. That amount is an average and it includes all types of credit of which mortgages are obviously the largest but it also includes credit card debt consumer debt and overdrafts. Of course debt is not distributed evenly across households. Some households are debt-free. Older households tend to be debt-free; younger households tend to have a lot of debt. But in 2003 on average household debt was $61000. By 2008 just 5 short years later it was $107000. That is by far the fastest rise in debt burden that New Zealand has seen over any reasonable period. The average household now owes $107000. 
New Zealanders have fortunately understood the risks of that debt. They understand that if interest rates are rising it will eat into their standard of living because they will have to pay more interest on what is now a much larger stock of debt than they had before. Much of that debt has been incurred in buying houses from each other or buying consumer goods none of which generates a return to the economy. New Zealanders are now being careful with their spending and are trying to pay off debt but we have barely made a dent in that $107000. In the meantime the people who lent the money to us still want us to pay interest and we have to keep going back to them through the banks to roll over that debt. 
If we thought that $61000 was enough debt per household then every household in New Zealand would have to pay off $40000 of debt. That would have an enormous impact on this economy because it is money that would not be going into the job-rich areas such as the retail sector or into building new houses. Even if we think $107000 is about the right amount of debt that figure still represents a lot of constraint in this economy. The burden of debt that households have built up has now become quite a considerable drag on economic growth. Until households believe that they have their debt at the right level and that they can cover the risks of interest rates rising on that debt as the economy recovers they will not go out and spend up. 
In the agricultural sector it is worse. The agricultural sector debt per farm more than doubled over the period from 2003 to 2008. Despite the fact that we have record commodity prices we are not seeing that money flowing into the shops in Hamilton and Invercargill because people in the farming community have to pay down the debt that they ran up some on productive investment but mostly on bidding up the prices of farms and buying them from each other. Again although conditions are favourable with very high commodity prices it will take some time for those conditions to filter back into the economy because the debt hole on our farms is so large. They will be pouring their profits into that hole for some time yet. 
The same kind of scale of rebalancing is evident when it comes to job growth. We can think of the economy as being 80 percent non-tradable—that is domestic which is not competing with the rest of the world—and about 20 percent making up the export sector and the tradable economy. The non-tradable sector was delivering a lot of new jobs over the last decade. But far too many of them were funded by the debt that I have just talked about and by big increases in Government spending. That spending simply cannot continue and it is not continuing. New Zealanders have decided that it will not continue. The Government has been a bit slower and we are deciding that we will have to tighten up. 
Substantial job growth will not come from that 80 percent of the economy. There will be some growth and there has been. In the last 15 months there have been 35000 new jobs in the non-tradable sector but that is 80 percent of the economy. The sustainable job growth has to occur in the other 20 percent. In the export sector in the 5 years to 2009 the number of jobs shrank by 55000. We had 55000 fewer people in the export sector 5 years on from 2003. That trend has just turned round and with high commodity prices it should keep turning round. So 20 percent of the economy needs to grow very fast to offset the fact that the other 80 percent of the economy which generated all the jobs is now heavily constrained by debt and will not be growing nearly as many jobs as it used to grow. There is a long road ahead of us to get a vibrant job-generating export sector up and going when it has been on its knees for a fair bit of the last decade shrinking in production and shrinking in jobs. 
That brings me to the issue of the public sector which the Prime Minister addressed in his speech. We are very keen to see an enthusiastic professional and innovative public sector. Not only are we keen to see it; it is an absolute necessity. New Zealanders’ demands and expectations for public services have not shrunk because of a recession; those demands and expectations have continued to grow. In fact those expectations are probably lifting: people expect better health care they expect better education and they expect more effective law and order from the police and prison system. So the Government is focusing on producing more and better public services knowing that it will have to do so for less. 
I expect Opposition members will rant on about cuts as they usually do but in the time since they left office we have reprioritised $4 billion— 
Sue Moroney 
: Cuts. 
Hon Member 
: He means cuts. 
Hon BILL ENGLISH 
: There we go: they call it cuts. Any dollar spent in the public sector under Labour is a dollar that cannot go anywhere else. They are the only people in New Zealand who think that. Every household and every business in New Zealand has had to reorganise its affairs and the public sector will need to be reorganised in order to produce more and better services. We are determined to do that. 
The Government will go about this task as it has so far: in a very considered and thoughtful manner. We have already initiated quite a lot of change across the public sector. Increasingly the public sector is taking leadership of that change because its members can see that to have satisfying professional lives and to meet their strong ethic of public service things will need to be done a bit differently. It will be the Government’s role to support them in that task. They are aware of the financial constraints; they have heard that message for a couple of years. The rest of the community is aware of the financial constraints which is why people take no notice of Labour’s ranting about cuts. They know actually that Labour oversaw a pretty bloated public sector which is now being brought into line. 
I along with the team in the National-led Government look forward to participating in a process that sees improvements in public services at the same time as we get Government finances into line reduce our record-breaking liabilities to overseas lenders and get this economy up and running and producing more jobs.