Norman Russel: Debate on Crown Entities Public Organisations and State Enterprises — In CommitteeText is incorporated into the Bound VolumeNorman Russel: Debate on Crown Entities Public Organisations and State Enterprises — In Committee[Sitting date: 14 May 2013. Volume:690;Page:9880. Text is incorporated into the Bound Volume.]Dr RUSSEL NORMAN (Co-Leader—Green):I rise to speak briefly on the Reserve Bank. The reason why this is important is that the Reserve Bank gave a very important report to the Finance and Expenditure Committee last week about financial stability. The key point that it was making in its report was that the out-of-control housing market is threatening the financial stability of the financial sector and the banking sector in New Zealand. When I asked the Governor of the Reserve Bank directly whether the New Zealand economy had rebalanced which the Government set itself as its top economic priority when it first came into office the governor gave a very direct answer that the New Zealand economy has not rebalanced under this Government—that is if you look at the relationship between the internationally competitive sector of our economy or the tradable sector versus the non-tradable sector the non-tradable sector is once again growing dramatically. That means that our current account deficit is growing as we spend a lot more than we earn. Eventually as Treasury projects it will increase our overseas debt very significantly. The key criterion that this Government set itself when it came into office was to return the economy back to balance between the tradable sector and the non-tradable sector and what the Reserve Bank has been saying very clearly is that this has not happened.This is very important for people to understand in Budget week. In Budget week the Minister of Finance will make a big deal about the fact that after borrowing around $40 billion Bill English might stop borrowing money in the next couple of years—that is return to a fiscal surplus. This does not mean that the country stops borrowing money. In fact New Zealand is borrowing money hand over fist. We are currently running a current account deficit of 5 percent of GDP. This means that either we have to borrow 5 percent of GDP per year which is about $10 billion or we have to sell assets worth that much per year. And any country that persists in borrowing or in selling assets at that magnitude every year is a country that is on a path to a crisis. If you persist with a massive current account deficit like that as this Government projects to do and as the Reserve Bank shows that we are projected to do then you have not rebalanced your economy and in the long run there will be a very significant adjustment.The problem is that the Government has focused in its rhetoric purely on the fiscal surplus which is significant and important—after borrowing about $40 billion it is about time Bill English stopped borrowing so much money and putting future generations into debt. After borrowing that much money it is time to go into a fiscal surplus. But the point is that the country as a whole has been thrown into a massive deficit as a result of the policies of this Government.Bill English told us that he would fix this problem. In fact he told us that it was his No. 1 economic priority to rebalance the New Zealand economy away from consumption and debt. In fact he has done the exact opposite. What we are seeing in New Zealand now is that the tradable sector is shrinking and the non-tradable sector is growing. The result of that is that the current account deficit is growing according to Treasury’s and the Reserve Bank’s projections.Treasury’s projections are that the current account deficit will increase to about 6.5 percent of GDP. The Reserve Bank itself says that the current account deficit could increase even more than that as a result of the overvalued New Zealand dollar. Unfortunately the Government will not do anything to intervene against the currency. We have seen that the Reserve Bank itself has recently told us last week that it is intervening against the New Zealand dollar to try to bring it down using its reserves. That is not likely to be very successful because the quantum involved is pretty small whereas what we are seeing with other central banks overseas is they are using very large amounts of recently created money quantitative easing in order to reduce the value of their currencies and make their tradable sector more competitive. In New Zealand our Government is not doing anything about the overvalued exchange rate with the result that the tradable sector is suffering and the result that we are now running a very very large current account deficit. It is the second-largest in the OECD—second only to Turkey—and is projected to increase.If future generations want to have a country that is not owned from overseas if future generations want to have a country that is not highly indebted they will not simply be looking at the question of whether the Government is running a fiscal surplus though that is significant. The much bigger question the question that Bill English himself identified as the much bigger question is what the balance is between the New Zealand economy as a whole and the rest of the world. On that question what the Reserve Bank said very clearly is that rebalancing has failed. When I asked the Governor of the Reserve Bank what would happen if we continued down this path he said ultimately there would be a correction that would be forced on us by our creditors and by the foreign currency markets. The choice before us is whether we make that adjustment ourselves or we leave it for someone else.