2. Question No. 2—FinanceNICOLA WILLIS (Deputy Leader—National) to the Minister of FinanceQuestion No. 2—Finance2. NICOLA WILLIS (Deputy Leader—National) to the Minister of Finance: Does he stand by his statement The short term challenge of inflation is significant"; if so when does he expect inflation to return to the Reserve Bank's 1-3 percent target range?Hon GRANT ROBERTSON (Minister of Finance): I stand by my statement in the context it was made in a speech for the Wellington Chamber of Commerce this morning. As I went on to say global supply chain disruptions ongoing localised lockdowns in China and Russia's illegal invasion of Ukraine have pushed inflation rates to higher levels. On the second part of the question my expectation is that the Reserve Bank will fulfil the obligation under the monetary policy remit that I agreed with them to keep future annual inflation between 1 and 3 percent over the medium term. I note that the Reserve Bank has forecast inflation to come back down over 2022 and back inside that target band in 2023.Nicola Willis: How can New Zealanders have confidence in his assurance that inflation is only a short-term challenge when the Reserve Bank as recently as May last year predicted an inflation peak of 2.6 percent which is less than half of the inflation levels New Zealand is currently experiencing?Hon GRANT ROBERTSON: I can't speak for the Reserve Bank and the reason for their projections and forecasts—I've given them to the member today; she's read out some other ones. Those are matters for the Reserve Bank to defend.Nicola Willis: Is he aware that the Reserve Bank's latest forecast show that non-tradeable or domestic inflation will still be outside the target range in 2025 and if so why is he claiming inflation is a short-term challenge?Hon GRANT ROBERTSON: The balance between tradeables and non-tradeables will continue I'm sure to see a significant impact from what happens offshore in what we call non-tradeables as well. So for example we've had the issue around building supplies which have a massive influence on what is a non-tradeable factor in inflation. With respect to where inflation goes from here there are varying views from economists around the country and around the world. What we know is that inflation is at an elevated level it is putting pressure on households and we certainly understand that.Nicola Willis: Can he confirm his statement this morning on the impact of Government spending on inflation that "We do need to be careful what we spend" and if so why does he think now with the highest inflation in 31 years is the right time to be committing to the largest Budget operating allowance in history?Hon GRANT ROBERTSON: As we've covered a number of times in this House the operating allowance contains a one-off component to begin the major needed reform of our health sector. Operating allowances will continue to trend down from there. As a percentage of GDP—i.e. being able to comparably look at the way in which our spending works—our spending is very similar to what the previous National Government did straight after the global financial crisis (GFC) and it is forecast to come down as well. It's important to get a balance right in the Budget and I note the member's earlier statement that she made that the National Party would effectively be spending the same amount as the Labour Government is proposing to.Nicola Willis: Well can he confirm his view that "The economy is experiencing significant capacity constraints" and if so why is he planning to spend so much in the upcoming Budget that he's had to delay the return to surplus by another year?Hon GRANT ROBERTSON: The return to surplus I note as I have in the House earlier this week is quicker than the return to surplus that the National Government did after the GFC. The thing that the member needs to understand here is that the Government has to balance a set of priorities. We have to invest in our health system. We have to invest in our education system. We are doing that in a way that means that we have debt that is far lower than most of the countries that we compare ourselves to and that we are returning to surplus quicker than the previous National Government did—that is the kind of balance that we need in a Budget.Nicola Willis: Well is he concerned that according to BNZ "Our central forecast currently is that New Zealand's growth stalls completely in 2023" and doesn't that show the Government urgently needs a better economic plan than spending more and taxing New Zealanders more to pay for it?Hon GRANT ROBERTSON: An economic plan that the member would propose with untargeted tax cuts would actually have all of the impacts that she's talking about and in fact would see us in deficit for longer than is currently proposed. With respect to the views of the BNZ there are a variety of opinions out there among our different bank economists and forecasters—for example the ASB say that New Zealand's economy is in a strong position and has sound foundations showing remarkable resilience and adaptability.Nicola Willis: Well does the Minister understand that inflation-adjusting tax thresholds would make the average income household $1600 a year better off and why does he continue to ignore the squeezed middle?Hon GRANT ROBERTSON: The problem for the member is she's ignoring the other part of her tax policy where those earning more than $180000 will get thousands of dollars more while those on the minimum wage get their two bucks a week. It is all about making sure in a Budget that you get priorities right and you get a balance. Our view and the view of the IMF is now is not the time for major tax reform; now is the time to make sure we support low and middle income New Zealanders through this inflation spike and get on with investing in things like the health system and making sure we respond properly to climate change."