English Bill: General Debate 
English Bill: General Debate 
[Volume:667;Page:14644] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the House take note of miscellaneous business 
. There is no doubt that the vast majority of New Zealanders are better off for the tax switch that occurred on 1 October. More important than that the tax switch on 1 October was never designed to be a lolly scramble; it was designed to change the incentives in this economy. Those incentives really did need to be changed. I will briefly outline why those incentives in this economy needed to be changed so much. 
Since about 2004 this economy has been on a debt-fuelled consumption binge. In fact we released some figures the other day that showed New Zealanders borrowed about $6 billion against their houses in 2007 and spent that on consumption. To a large extent they were matching the behaviour of the Government of the day. It was running up Government spending at a very rapid rate through both increased transfers to New Zealand households and a massive explosion in the back-office bureaucracy of so many public services. Many New Zealanders thought that this sense of growth in the economy was sustainable but unfortunately they have been proven wrong. Too many of them were in jobs that were reliant on debt-fuelled consumption through the housing market through Government and through the retail sector. 
The effect of that over the period from about 2004-05 was that the export sector in New Zealand actually shrank. This great little trading nation managed to shrink its export sector during what was meant to be the best 10 years ever in Western economies. It is hard to understand how the economic management of the previous Government managed to do that. At the same time not only did the previous Government shrink our export sector and therefore our earning capacity but also it got to the point where it shrank after-tax wages in the best 10 years that the developed world has ever seen. That left a big mess. The New Zealand economy went into recession under Labour well before the global financial crisis starting at the beginning of 2008. The Government changed with an economy in recession household debt out of control and inflation running at 5 percent. 
The tax switch is designed to do something very simple: those things we want less of we are taxing more—that is excessive consumption and housing speculation—and those things we want more of we are taxing less—that is savings investment wages and income and the proceeds of exports. The tax switch is one measure but a very significant measure in rebalancing this economy. No more can we have lolly scramble after lolly scramble where the Government throws money at households covering up the underlying poor performance in the economy. When those households were getting their extra Working for Families it meant they did not notice that their real after-tax wages were actually dropping. The tax switch is designed to change the incentives in the economy. 
Over the next 4 or 5 years we will see this economy develop in significantly different ways from the last 10 years. The early signs are that the changes are making a difference to New Zealanders’ preferences. There has been a big swing round in savings behaviour for instance where New Zealanders are now being very careful with their spending which is why things are flat for retailers. While they are doing that they are paying off their credit cards they are paying off their overdrafts and they are paying down their mortgages. Those are all changes that needed to occur in this economy.