English Bill: Questions for Oral Answer — Questions to Ministers Questions to Members 
English Bill: Questions for Oral Answer — Questions to Ministers Questions to Members 
[Volume:643;Page:12722] 
1. Hon BILL ENGLISH (Deputy Leader—National) 
 to the  
Minister of Finance 
: Does he agree with the Reserve Bank’s assessment that “fiscal policy is contributing to inflationary pressure”; if not why not? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 No I do not. I agree that ongoing inflationary pressures need to be kept in mind—by those who have such a thing—when considering fiscal policy. But fiscal policy currently remains very strong and is stronger than was forecast at Budget time. 
Hon Bill English 
: Does the Minister agree with the Westpac bank commentary that says: “The most extraordinary paragraph was devoted to fiscal policy. The Minister of Finance recently said it would be difficult to argue the Government is contributing to inflationary pressure. The Reserve Bank’s retort could not have been blunter. Despite ongoing surpluses fiscal policy is contributing to inflationary pressure.”; and should we believe the Minister of Finance or the Reserve Bank? 
Hon Dr MICHAEL CULLEN 
: It is clear that if we at this point were collecting $4 billion a year less than we are as the National Party proposed fiscal policy would be much weaker and inflationary pressures would be much stronger. The member yesterday was calling for a loosening of fiscal policy; today he is back to calling for a tightening of fiscal policy. 
H V Ross Robertson 
: Has the Minister received any reports on the merits of this Government’s prudent fiscal policy? 
Hon Dr MICHAEL CULLEN 
: Yes. I have seen reports from bank economists that highlight the importance of our strong fiscal position in counterbalancing the large current account deficit which is a symptom of our poor savings record. I have also seen a multitude of conflicting reports calling for larger surpluses and for smaller surpluses. Mr English no doubt today will continue that track record of inconsistency. 
Hon Bill English 
: Is the Minister aware that people who face mortgage rate increases of up to 2 percent may in fact believe the Reserve Bank which says that the Government’s fiscal policy is inflationary and is therefore tending to push interest rates higher for longer than would otherwise be the case; and given that the Reserve Bank makes decisions about interest rates why should those New Zealanders believe him rather than the Reserve Bank? 
Hon Dr MICHAEL CULLEN 
: It seems likely that at the moment we are actually still running a cash surplus. I do not know of any country in the world where a Government that runs a cash surplus is regarded as running an expansionary fiscal policy. I remind that member that not very long ago he was using the increase in mortgage rates as a reason why we had to have large tax cuts immediately which would add to fiscal stimulus within the economy. 
Hon Bill English 
: Is it now the Minister’s position that New Zealanders who face big increases in their interest rates face those increases because the Reserve Bank is wrong that in fact there is no inflationary pressure from the Government’s fiscal policy and that therefore the increases in interest rates they face are unnecessary? 
Hon Dr MICHAEL CULLEN 
: The Reserve Bank has been tightening monetary policy for the last 3 years or more. During that entire period the Government has run surpluses that have been described as obscene by the member opposite—indeed the senior Opposition whip nods her head; I think that is what was happening at that point. We are one of the few countries in the world to be running a cash surplus after all investment after investing in the Superannuation Fund and after paying for all capital. 
Hon Bill English 
: Does the Minister believe that New Zealanders who face big increases in interest rates on mortgages overdrafts and credit cards should be pretty upset if they find out today that the Reserve Bank has pushed interest rates up when there is no problem with Government spending simply because Dr Cullen says there is no problem? 
Hon Dr MICHAEL CULLEN 
: The member may not have noticed this but domestic inflation has been running at about 4 percent per annum or so for the last 3 years while the Government has run very large surpluses. All prices have been rising. Commodity prices have been rising in general including dairy prices which affect the New Zealand consumer as well as our overseas earnings. Those rises as the Reserve Bank itself says are the major factors leading to inflationary pressures within the economy. 
Hon Bill English 
: Can the Minister tell us in his capacity as Minister of Finance whether the Reserve Bank was right or wrong when it said today: “Despite ongoing surpluses … fiscal policy is contributing to inflationary pressure.”; is Alan Bollard right or wrong? 
Hon Dr MICHAEL CULLEN 
: I think what the Reserve Bank is referring to is that the current forecast has fiscal policy looser than it was last year—what is called a positive fiscal impulse. On those grounds I think the member will find that the updated forecast in December will show that fiscal impulse is significantly weaker than was forecast at the time of the Budget because the Government is running stronger surpluses. As soon as that figure is out in the public arena the member opposite will be calling for large tax cuts thereby leading to a weakening of fiscal policy and further inflationary pressures. He cannot have it both ways; he should leave that to some of his colleagues. 
H V Ross Robertson 
: Has the Minister received any recent reports on the factors that ought to be taken into account when considering the nature and timing of tax cuts? 
Hon Dr MICHAEL CULLEN 
: I have seen some very strange reports that seem to suggest that this Government’s four tests for tax cuts mean that tax cuts will not go ahead. One of those tests was that tax cuts should not add unduly to inflationary pressures. It is clear that Mr English believes that tax cuts should proceed of whatever size he cares to think up and whatever the inflationary pressures may be as a consequence but of course that a Labour Government should nevertheless run a tighter fiscal policy. 
Hon Bill English 
: What does the Minister think of his legacy now after 8 years of mismanaging economic growth whereby New Zealand is in the top half of the OECD has the second-highest interests rates and now has the 13th-highest tax burden? 
Hon Dr MICHAEL CULLEN 
: I cannot think of another finance Minister in New Zealand who after 8 years could say that he or she had seen 28 percent growth had seen unemployment nearly halved had seen the highest participation rate in the labour market in New Zealand’s history had seen a massive reduction in child poverty had seen reduced costs of going to the doctor and had seen significant reductions in the cost of attaining a tertiary education—and the Opposition can still only whinge pathetically.