Fitzsimons Jeanette: Questions for Oral Answer — Questions to Ministers 
Fitzsimons Jeanette: Questions for Oral Answer — Questions to Ministers 
[Volume:643;Page:12982] 
4.  
JEANETTE FITZSIMONS (Co-Leader—Green) 
 to the  
Minister of Finance 
: Does he have confidence in the advice he has received from Treasury over the past 4 years on emerging risks to New Zealand’s economy and in any economic modelling underpinning that advice; if so why? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I am sure that that advice has always been prepared in a professional manner and on the basis of Treasury’s best estimates of the data to hand. Sometimes that advice will be correct; sometimes it will not. The essence of economic crystal balls is that they are opaque. 
Jeanette Fitzsimons 
: Has the Minister asked Treasury for an explanation as to why its forecasts of oil prices have been so wildly wrong for the last 4 years with successive predictions that oil prices would by now have fallen to $26 to $43 to $51 to $68 and now with a prediction just 8 weeks ago to $66 when last week oil prices spiked at $98 and the average for November so far is $95? 
Hon Dr MICHAEL CULLEN 
: Treasury’s measure of oil price is based on the West Texas Intermediate price of oil and its forecasts of those are based on prices in the future market for oil. In other words of course to the extent to which Treasury has underestimated the increase in prices for oil so indeed will have all those people who are betting their money on prices for oil as well. 
Charles Chauvel 
: What is the best way a Government can protect the economy against emerging risks and unexpected shocks? 
Hon Dr MICHAEL CULLEN 
: By running a strong fiscal position and maintaining a constant focus on the long term—exactly what this Government has done. The main Opposition party is promising to borrow more which is exactly the wrong response in a time of economic uncertainty of this sort. 
Heather Roy 
: Why has the Minister ignored Treasury’s advice given to him in the 2005 briefing to the incoming Government to reduce the higher marginal rates of 33 percent and 39 percent on personal income to reduce the high effective marginal tax rates of low to medium incomes—in particular for secondary earners—and to consider tax reductions alongside potential new spending; and when will he stop blaming Treasury when it is Labour’s ideological blinkers that have left Kiwis paying much higher taxes than have been needed to fund Government services since 1999? 
Hon Dr MICHAEL CULLEN 
: That last part is certainly untrue. The surplus has grown very substantially only over the last 3 years or so. On the first part the member should read the 2005 briefing to incoming Minister more carefully. It actually told us that Treasury’s view was that if the growth in spending was cut back by $500 million each year—in other words by $500 million $1 billion $1.5 billion $2 billion and so on—then that money could have been put into tax cuts. Treasury was not proposing additional revenue reduction over and above what the reductions in spending should be according to its forecast. The member therefore needs to specify what the $500 million $1 billion and $1.5 billion in cuts were going to be over that period of time. 
Jeanette Fitzsimons 
: Does the Minister have any greater confidence in the oil price predictions of the Reserve Bank whose predictions for the day’s oil price were successively underestimated by 120 percent in September 2005 by 48 percent in September last year and still by 30 percent just 8 weeks ago—and here we are now? 
Hon Dr MICHAEL CULLEN 
: I think there is a very very high probability that any forecasts are likely to be wrong in this area; it is the nature of the high level of volatility of oil prices over both the short term and the long term. What is equally true is that our economy and that of most developed economies have shown much more resilience in the face of these kinds of oil price rises than previously had been thought likely—compared say with the events in the 1970s in that respect. So in other words of itself it is not a disaster if it leads to more fuel-efficient cars or the development of alternative fuels; it might actually be helpful for causes that the member and I have a shared interest in. 
Jeanette Fitzsimons 
: What impact does the Minister believe that the Reserve Bank’s consistent underestimating of oil prices has had on its difficulties in controlling inflation? 
Hon Dr MICHAEL CULLEN 
: To the extent that that flows through to the bank’s view of general price rises—and the Reserve Bank of course can look through the one-off effects of a commodity price increase such as oil—that would tend to have led it to a somewhat looser monetary policy than might otherwise have been the case. But I think that probably most would agree that the overall impact has not been huge in that regard. 
Jeanette Fitzsimons 
: Is the Minister concerned that all the Government’s transport demand assumptions and all its transport investment planning are based on totally flawed projections of oil prices or has the Government just given up on this in view of the answer to a written question received today from his colleague Annette King: “Oil price is one factor that may affect the forecast for traffic demand. It is difficult however to accurately assess future oil prices or to model the impact of prices on the level of traffic demand.”? 
Hon Dr MICHAEL CULLEN 
: I think the last statement is a statement of fact. Looking over the last 40 years we have seen in real terms very large fluctuations in oil prices—and it is worth reminding ourselves that oil prices now are not that much more in real terms than they were when they last peaked at a very high level—and they have not affected actually the rate of growth in demand for transport. That in part is a consequence of a stronger economy people’s leisure preferences and a range of other factors particularly as both alternative fuels and alternative vehicles are developed. One thing I do not share with the member I suspect is a view that higher oil prices will lead to an abandonment of the private motorcar. 
Jeanette Fitzsimons 
: I seek leave to table first of all the graph of Treasury projections against reality. 
Document by leave laid on the Table of the House. 
Jeanette Fitzsimons 
: Secondly I seek leave to table the graph of the Reserve Bank’s projections. 
Document by leave laid on the Table of the House. 
Jeanette Fitzsimons 
: Thirdly I seek leave to table the Monetary Policy Statement of December 2005. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? There is objection. 
Jeanette Fitzsimons 
: I seek leave finally to table the Monetary Policy Statement of September 2007. 
Madam SPEAKER 
: Leave is sought to table that document. Is there any objection? Yes there is objection.