Robertson Grant: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeRobertson Grant: Oral Questions — Questions to Ministers[Sitting date: 11 February 2016. Volume:711;Page:8922. Text is incorporated into the Bound Volume.]5.GRANT ROBERTSON (Labour—Wellington Central) to the Minister of Finance: When the Prime Minister said in his statement to Parliament this week that there is now a $17 billion shortfall from Budget 2015 leading to “slightly higher debt” exactly how much higher net and gross debt is now forecast and when will that debt peak?Hon BILL ENGLISH (Minister of Finance): I am glad the member has caught up on this. If he had done his own work he would have found that that was announced publicly in the Half Year Economic and Fiscal Update. Lower than expected economic growth in 2015 combined with weaker inflation means that tax revenue is expected to be slightly lower than was forecast in the 2015 Budget. This means that net debt is now expected to peak at 27.7 percent of GDP in 2016-17. The previous peak was forecast back in 2015 as 26.3 percent. Net debt is still expected to fall to around 20 percent of GDP by 2020.Grant Robertson: I raise a point of order Mr Speaker. I appreciate that the Minister has interpreted that question in a particular way but it did ask about net and gross debt. I did not actually hear the gross debt numbers.Mr SPEAKER: I will ask the Minister to complete just that phase of the answer.Hon BILL ENGLISH: I just thought the member was losing concentration.Mr SPEAKER: I will just have the answer.Hon BILL ENGLISH: Gross debt is forecast to peak at 37.5 percent of GDP in 2016-17. The Budget 2015 forecast showed a peak at 35.6 percent of GDP. But I might say to the member as I often say to the media when they ask about these numbers that it is just another Treasury forecast. It is about to start on reforecasting for Budget 2016 and it is possible that those numbers will change.Grant Robertson: Is it correct that the Half Year Economic and Fiscal Update issued after the House rose last year actually shows that nominal net debt will be $6 billion greater when it peaks in 2017 than was forecast in the Budget?Hon BILL ENGLISH: It could be something like that. That number will be generated by a combination of lower tax revenue and higher capital investment levels as the Government also indicated in the Half Year Economic and Fiscal Update. It increased its capital allowance for this next year by around a billion dollars. So on the current Treasury forecast debt will be up compared with where we thought it would be; on the next Treasury forecast debt could be down again. But generally it is headed towards a peak and then coming down.Grant Robertson: Can he in fact confirm that he has overseen New Zealand’s net debt rising by more than $50 billion and that on these forecasts he is set to break the $60 billion increase level some 5 years after he declared that the financial crisis would have been over?Hon BILL ENGLISH: There is absolutely no doubt net debt has risen and that is because on Planet Earth as opposed to “Planet Labour” we had a major recession and a $17 billion contribution to rebuilding Christchurch. The way we are getting debt to stop rising and to drop is to do all the things the member opposes—that is control spending; shrink the footprint of the Public Service by rationalising their accommodation which the Labour Party has opposed vigorously in the last few days; and otherwise dig into the long-term driver of Government costs which is social dysfunction.Chris Bishop: How do Treasury’s latest forecasts on Government debt compare with its forecast just after the National-led Government was elected?Hon BILL ENGLISH: The latest Treasury forecasts for net debt show that it is expected to fall to around 20 percent of GDP by 2020—that is 20 percent of GDP by 2020. This is in stark contrast to the forecast prepared before this Government’s first Budget Budget 2009 where Treasury projected never-ending deficits and net debt at 60 percent of GDP. That is three times the level that we are now headed to. That of course is what happens when you increase spending by 50 percent in 5 years as the previous Labour Government did.Grant Robertson: What level of net debt did the National Government inherit on coming into office in 2008?Hon BILL ENGLISH: What it inherited were Treasury forecasts—[Interruption]Mr SPEAKER: Order! The question has been asked. I want to hear the answer but I cannot possibly hear it—[Interruption] Well if the members also want to hear the answer that is good news so they can be quiet and we can all hear the answer.Hon BILL ENGLISH: OK well the member should listen very carefully. I think that in around Budget 2008 the Labour Government forecast net debt of around I think 8 percent. By early 2009 the combination of the global financial crisis and the re-estimate of the huge spending blow-outs of the Labour Government meant we were headed to net debt of 60 percent of GDP. That is when we got to work.Grant Robertson: I raise a point of order Mr Speaker. I asked a very specific question and the Minister of Finance did not answer it.Mr SPEAKER: I cannot be sure on this occasion. I was listening carefully but I had a barrage of interjection continuing on my left and whether it was answered accurately or not I cannot tell. If the member had assisted me to get silence when I asked for it—by less interjection from his own members—I would on this occasion possibly have been able to help him.Grant Robertson: It was close to zero by the way Bill. What price per tonne of whole-milk powder has been factored into the calculation that there is now a $17 billion shortfall from Budget 2015?Hon BILL ENGLISH: I cannot give the member that figure off the top of my head but I can characterise the forecasts. When they were done back in November Fonterra had forecast a significant uplift reasonably quickly in that price. Both Treasury and the Reserve Bank took a more conservative view and they do not forecast the price as rising much above where they are until later on in 2016. It is possible that the most recent decreases the price level it decreased to in the last couple of weeks is a bit lower than what is in the forecast.Grant Robertson: In light of that answer is it correct that in Budget 2015 a whole-milk price of US$3900 per metric tonne was given and that it is now on the latest auction price US$1952 per metric tonne and how much of that drop has been factored into the forecast?Hon BILL ENGLISH: I would say most of it if the member is looking for an answer but I would have to go back to inquire of Treasury about the detail. But the member would simply be giving the wrong impression if he is suggesting that the forecasts prior to Christmas that underpinned the $17 billion reduction in GDP are way above current milk prices because they will not be way above it.Grant Robertson: Can he in fact confirm that the price per tonne of whole-milk powder that has been used to calculate the $17 billion shortfall is in fact a substantially higher amount than the current price?Hon BILL ENGLISH: I can go and check exactly the numbers against the price this week but the member is in the habit of picking in any week or any day the most negative number he can find and then comparing that with a forecast that was actually made 2 or 3 months ago. In this case the whole-milk powder price has fallen in recent weeks. Some other dairy product prices have gone up. It could go up again next week. Treasury is about to redo its forecasts and it will use the most up-to-date information. The most up-to-date information will include the boom in tourist numbers—Hon Nathan Guy: Manufacturing.Hon BILL ENGLISH: The record growth in manufacturing now I think is in its 40th month since the member declared a crisis. So although dairy prices—Mr SPEAKER: Order! The question was answered right at the start.Grant Robertson: Will the Minister of Finance commit today that the figure of a $17 billion shortfall from Budget 2015 includes a price for whole-milk powder that reflects the current price?Hon BILL ENGLISH: Almost by definition it could not because the forecasts were done in November last year and as part of his extensive work the member may have noticed that a lot of things have happened since then. That is why Treasury is about to redo the forecasts and it will take into account the best current information. In the face of global uncertainty New Zealand is fortunate that dairy is not as big a proportion of the economy as the member seems to think it is. It is not going well. Other parts of the economy are going well and that is why real wages are rising and more new jobs are being created.