Norman Russel: Supplementary Estimates — Imprest Supply DebateText is incorporated into the Bound VolumeNorman Russel: Supplementary Estimates — Imprest Supply Debate[Sitting date: 26 June 2013. Volume:691;Page:11300. Text is incorporated into the Bound Volume.]Supplementary EstimatesDr RUSSEL NORMAN (Co-Leader—Green):I rise today to speak in general terms about the Government’s economic and fiscal strategy as related to the bills in front of us the Appropriation (2012/13 Supplementary Estimates) Bill and the Imprest Supply (First for 2013/14) Bill.I think that perhaps the short version of the Government’s economic strategy at the moment is for the country to borrow like crazy in order to maintain some level of economic activity until the next election. If you look at what is happening with the current account deficit a $10 billion a year current account deficit essentially we are either borrowing from offshore or selling our existing assets. Either way you look at it we are degrading our capital base. The Government hopes that running very large current account deficits between now and the next election will keep the economy ticking over and that people will feel like things are going OK. At a superficial level if you look at GDP numbers there is some truth in that. But of course anyone can borrow their way to a bit of economic activity. It is not that hard to do. Even Steven Joyce can borrow his way to a bit of economic activity.Hon David Parker: MediaWorks have done that too. What’s happened to them?Dr RUSSEL NORMAN: That is right. MediaWorks recently demonstrated the particular problem with this strategy of borrowing one’s way to economic prosperity.The strategy of the Government for the New Zealand economy is to borrow more every year. If you look at the projections that are in the Government’s own Budget—that is the projections for the New Zealand economy—they are for the current account deficit to increase through to 2017 until it is $17 billion a year. So the strategy of the Government is that in 2017 New Zealand will borrow or sell assets worth $17 billion. That is how we will fund economic activity in New Zealand. That is what these very large and growing current account deficits mean and they are in the Government’s own numbers.I think what people need to realise is that the Government is trying to pull a swiftie. The swiftie is this—and Mr Key has done this on numerous occasions. Mr Key says: “Oh the Government is going into surplus possibly in the next few years therefore the economy is going well.” This is what he says. He says that the Government is going into surplus therefore the New Zealand economy is going well. He hopes that New Zealanders will not follow what he is saying but will just think: “Oh yeah things seem all right.” He is hoping that New Zealanders will not notice that the Government’s economic plan is to borrow $10 billion this year and increase it every year through to the end of the projected period.It is not just that the borrowing the current account deficit is increasing every year in nominal terms as Mr Joyce pointed out today in question time; it is actually increasing as a proportion of economic activity increasing as a proportion of GDP. Under the Government’s own projections the current account deficit is 5 percent currently and rises through to 6.5 percent of GDP in 2017. So the Government’s strategy is that they think: “Well we’ll just say the Government’s surplus is fine and people won’t notice that in fact the economy as a whole the country as a whole is in a deep deficit.” and it is a deficit that under the Government’s own projections is getting worse every year. So every year in order to finance economic activity in New Zealand we have to sell off some of our assets—maybe some of our large corporations or maybe some land some kind of capital assets—or we have to borrow from overseas about $10 billion this year and every year going ahead. It increases to $17 billion a year by 2017 according to the Government’s own projections.That is the sleight of hand that is happening right now in terms of economic management by this Government and that is the lie that it is hoping the people of New Zealand will not wake up to before the next election. It is hoping that the people of New Zealand will not realise that a Government surplus—a wafer-thin Government surplus—is not the same thing as a national surplus. In fact the Government’s strategy is for a massive national deficit. National’s plan for the New Zealand economy is toborrow like crazy and borrow more every year. That is what the current account deficit is.In this Parliament we have been questioning for some time various finance Ministers and associate finance Ministers about current account deficits. At the beginning of the questioning Bill English did not really know what a current account deficit was. We questioned him about it at some length and he did not know what it was. However by 2010 he had woken up to it to give him his due. In the 2010 Budget he recognised the problem and he said: “We need to rebalance the New Zealand economy.” He was very clear about that. He said it many times on average twice a week in this House.What he meant by that was that we had to deal with the current account deficit because that is the No. 1 metric of the imbalances in the New Zealand economy. He set himself the goal of making the tradable sector improve its performance and the non-tradable sector stop growing so quickly so that we could get the two back together again and the tradable sector could help us get out of the hole. The tradable sector is the part of the economy that exports offshore or competes with imports—it is that part of the economy. The non-tradable sector is the rest. We need the tradable sector to be competing with imports or selling exports in order to pay for all the things we want from the rest of the world. Bill English said repeatedly that the single-biggest vulnerability facing the New Zealand economy is the net external liabilities. This is what he said in 2010.According to the Government’s own projections New Zealand’s net international investment position our net debt to the rest of the world is currently about $150 billion. Under National’s economic plan in its own Budget the net debt increases to $208 billion by 2017 according to the Government’s own figures. Judged by Bill English’s own criterion—the external imbalances the current account deficit the biggest vulnerability facing our economy as he described it—there is no way to describe the Government’s plan other than as a failure. There is no other way to describe it based on the Government’s own numbers based on its own criterion for judging its economic performance.Bill English even said back in 2010: “You’ve got to look at the country’s position as a whole; not just the Government books. You’ve got to look at the nation’s books.” That is what he said. He said: “You can’t just look just at the Government books”—that is an important part of it and we agreed with him—“You’ve actually got to look at the nation’s books.” When you look at the nation’s books as a whole we are borrowing or selling assets worth about $10 billion a year and under National’s plan that increases to $17 billion a year.I hope when people go through the next 12 months or so running up to the election—and I do not know whether we are going to be successful at this because the Government has the best spin doctors in the game; there is no question about it—the people of New Zealand wake up to the fact that a Government surplus is not the same thing as a national surplus. It is not the same thing as the country being in surplus. In fact under National’s plan there might well be a very small Government surplus but there will be a massive nationwide deficit.We do not know whether we are going to be able to communicate that basic fact through because it is a bit complicated truth be told. The current account deficit is not the kind of thing that most people spend their time talking about amongst their friends or thinking about or arguing about. But in fact it is the most important number that people need to know about the New Zealand economy and how it is going in terms of paying our way with the rest of the world.When I asked the Reserve Bank Governor about this when he appeared in front of the Finance and Expenditure Committee he said that sooner or later there will be acorrection and the correction will be either one that we impose upon ourselves by actually helping our tradable sector and getting out of the enormous hole of debt we have got ourselves in or one that is imposed on us by our creditors. Our creditors will say either: “We’re not going to lend you any more money.” or “Well we’ll keep lending you money but it’s going to cost you a hell of a lot more.” That kind of correction will happen in due course.There were those financial traders the Prime Minister amongst them prior to the global financial crisis who said that debt does not matter—right? They said that debt does not matter. The fact that there are these huge imbalances in the American economy is irrelevant. They said: “What does it matter? Debt doesn’t matter.” Well it turns out that debt really really really does matter. That is what the global financial crisis proved. The market does not always accurately price true risk around debt and eventually there is a radical correction. That is what the global financial crisis was.New Zealand is in the same position. We are building up massive stocks of external debt. At the moment it is pretty cheap so we are borrowing more hand over fist. The Government’s strategy is to borrow more and more and more for the country as a whole but sooner or later there will be a correction and when that correction comes it will have very significant consequences for New Zealand. It is much better that we manage ourselves out of this hole rather than have someone else impose their particular bailout formula on us. That is why it is so critical that we get on top of the external imbalances that Bill English himself identified.The green economy I would argue is part of that solution but it is only part of it. What we are seeing most of all from this Government is a failure to deal with the single very important problem that Bill English himself identified. If he does not deal with it it is going to create a major problem for the next Government—that we are going to have to deal with this incoming huge debt burden of a current account deficit.