English Bill: Appropriation (2009/10 Supplementary Estimates) Bill Imprest Supply (First for 2010/11) Bill — Second Readings 
English Bill: Appropriation (2009/10 Supplementary Estimates) Bill Imprest Supply (First for 2010/11) Bill — Second Readings 
[Volume:664;Page:11881] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the Appropriation (2009/10 Supplementary Estimates) Bill and the Imprest Supply (First for 2010/11) Bill be now read a second time. 
 This is an opportunity about a month after the Budget to reflect on just where the New Zealand economy is going and what needs to be done to get it into shape. It is a common view that the New Zealand economy was getting along all right until late 2008 then it got hit by the global recession and now we are recovering from that recession. That is only part of the story. The other part of the story is just as important and that is the story about what happened in this economy from about 2004-05. 
What happened was that our earning capacity shrank. In the 5 years from 2004 the tradable sector of this economy shrank by 10 percent and our spending capacity grew—in fact it grew by about 15 percent in the 5 years from 2004. Clearly that is unsustainable. We cannot continue to maintain an economy where our growth in spending and consumption is significantly faster than our growth in earning capacity or as happened our shrinkage in earning capacity. The country has done what any household or individual does when it spends more than it earns; it has borrowed to cover the difference. That borrowing has now become really quite extensive. One measure of it is called the net international investment position. It is a measure of what New Zealand owes to the world. What we owed to the world back in 2000 was about $90 billion; currently we owe around $170 billion to overseas lenders. The forecasts that take into account the impact of the recession tell us that by 2014 we could owe the rest of the world $250 billion or in American numbers around a quarter of a trillion dollars. 
The symptoms of that became particularly obvious in the second half of this decade. We saw a property boom a boom in speculation in which many New Zealanders were caught up. That property boom was financed by our banks borrowing overseas—in effect our households borrowing with our banks as the intermediaries. We also saw a big upsurge in Government spending from about the middle of the decade. Both of those combined together pushed interest rates to pretty much record levels since the early 1990s and the exchange rate to the highest 5-year moving average since the Second World War. The effect of that was to suppress our export sector. It is no bigger now than it was in 2002 and there have been no net new jobs in the export sector for 10 years. As I explained in question time today in the pure export sector we have had about 40000 fewer jobs over recent years. So New Zealand has borrowed to cover the difference between a shrinking earning capacity through a shrinking export sector and a fast-growing spending capacity through out-of-control Government spending and a property boom. 
The borrowing that adds up to our net international investment position is a concern. It is not an immediate pressing issue but it is a concern for the same reasons that extensive debt bothers a household a family or a business. First we have to pay the interest. That shows up through our current account deficit. This economy when it rolls out of bed on Monday morning has to meet the interest bill on $170 billion owed to foreign lenders before it does anything else. Before we can buy back assets before we can invest in our own businesses before we can make the capital investment that might create a new job we have to spend the first 6 or 7 percent of GDP servicing our debt to foreign lenders. The second reason we worry about it is simply that it represents a vulnerability in a world where lenders are getting grumpy. I do not think there is any doubt about that. If we follow the financial markets from day to day we see regular headlines now about countries and businesses within countries that are struggling to borrow the money they need from global financial markets. Of course New Zealand does not want to get into that position. 
The Budget we have just had is one step—and I would say it is only one step—down a path to reducing our vulnerability to our overseas lenders if we possibly can which will be a long-term job; increasing our growth rates; and ensuring we get a recovery that helps to rebalance the economy. The Budget started that process of rebalancing. We made it clear that we cannot afford to have another cycle where people spend too much borrow excessively and speculate on property and investment and the export sector effectively shrink. That is simply not on for New Zealand in the next 10 years. So we made a decision in the Budget to change the incentives through the tax system. The changes in the tax system are unambiguously aimed at discouraging excessive consumption and property speculation and encouraging through lower tax rates more investment more jobs and more savings. 
But that is one part of the programme. Another part of the programme as expressed in the Budget is that we have to get hold of the quantity and quality of public spending. Although households have been spending more than they earn for a fair bit of the last decade until 2008 the Government was actually bringing in more revenue than it was spending and was running surpluses. That position started reversing from Budget 2008 before the global financial crisis. As the Government has decided to absorb the shock of the recession on its balance sheet and as it has decided to protect New Zealanders from the sharp edges of recession it is now running up deficits and running up debt which is contributing to New Zealand’s vulnerability. 
So the Budget does focus on containing the growth of Government spending. By and large pretty well everyone in New Zealand accepts that now is the time to do that after 10 years of plenty in the State sector. Probably the members of the Labour Opposition are the only people in the country who believe that the Government should keep the spending tap open and let it flow regardless of the quality of that spending and send the bill to the next generation of workers through borrowing. The Budget sets out the limit on the growth of Government spending. It also includes around $1.8 billion of reprioritising of Government spending—that is shifting spending from low-quality and in some cases quite ineffective programmes to high-quality more effective front-line services. 
The business of rebalancing the New Zealand economy is in my view about a 10-year job. The early signs are promising. Households are not going on a spending binge and they are not rushing back to the housing market. They are being careful about their borrowing and the good news on the earning side of the economy is that our terms of trade are about as high as they have ever been—that is the prices we are getting for our exports have lifted significantly over the past 2 or 3 years. The early signs are that we will have a rebalanced recovery—that is sustainable growth through earning more from the rest of the world and consumers households and a Government that are trying to contain their spending and consumption. A feature of the Government’s economic policy over the next few years and of a whole lot of decisions made both within and outside the Budget will be that we continue to pursue the theme of rebalancing the economy. Some of these issues are not new for the New Zealand economy but certainly in the second half of the last decade they became significantly worse and the damage caused in that period will take some considerable time to undo. 
I am pleased to move that these bills be read a second time. They are the legislative expression of decisions made by a Government with a clear sense of direction and a long-term plan and built on the resilience we have seen from New Zealanders through this recession. New Zealand has handled the bad times fairly well and we are in a great position over the next 4 or 5 years to make the best use of the better times.