[Sitting date: 03 December 2014. Volume:702;Page:2. Text is subject to correction.]

2. TIM MACINDOE (National—Hamilton West) to the Minister of Finance : What reports has he received on New Zealand’s economic performance and particularly the outlook for growth over the next few years?

Hon BILL ENGLISH (Minister of Finance): Last week the OECD issued its latest economic outlook for New Zealand. It noted that economic growth in New Zealand remained sound despite the sharp fall in dairy prices since February. It said that recent business opinion surveys point to near-term growth rates continuing in excess of 3 percent before moderating to a more sustainable rate of 2.75 percent by 2016. I think this forecast is probably a little bit optimistic. It said strong job creation is boosting household incomes and consumption, and has reduced the unemployment rate from 7.2 percent following the financial crisis to 5.4 percent. The OECD, I believe, is absolutely right about that. And it says that wage and price pressures remain modest, which is important because that points to a sustainable period of economic growth.

Tim Macindoe : What other reports has the Minister received about New Zealand business confidence, and how is that expected to translate into employment and investment growth?

Hon BILL ENGLISH : The ANZ’s latest business outlook survey described the economy as being in “a sweet spot”. Demand indicators remain strong, but inflation is benign at the moment. The survey confirmed good growth, employment, and investment indicators. Business confidence lifted again in November, up 5 points on the previous month. However, there are challenges, including news overnight of a further fall in prices on the latest Global Dairy Trade auction. Although dairy prices are significantly below their record highs, prices for other commodities, including aluminium, beef and sheep meat, and kiwifruit are still rising. I also notice that the oil price continues to drop, which points to lower prices at the petrol pump. So, on balance, although dairy prices are down, New Zealand is sufficiently resilient to handle that kind of event.

Tim Macindoe : Is the elevated level of business confidence and optimism shared by other surveys the Minister has received?

Hon BILL ENGLISH : There are a number of recent surveys that point to continued optimism about the economy, including, for instance, the New Zealand Institute of Economic Research’s survey, where it observed that the recovery is largely funded out of current income rather than borrowing. I think that that is the point. It is the quality of economic growth as much as the optimism about it that matters, and that it is broad-based and it looks sustainable over a period of several years, which should deliver income increases to New Zealand households.

Grant Robertson : In light of the $6 billion to $7 billion hole in the New Zealand economy created by the drop in dairy prices, can he confirm the OECD’s view that New Zealand has one of the least diversified export profiles in the OECD and that it has got worse under his watch?

Hon BILL ENGLISH : No, I cannot actually confirm that. That is a matter of opinion.

Dr David Clark : Ha, ha!

Hon BILL ENGLISH : Well, I will just give you an example. Australia is twice as dependent on iron ore as New Zealand is on dairy. That is quite an important point. Secondly, we do have a broadening range of exports, many of which find their prices are going up not down. Unlike the Opposition, we have confidence that New Zealanders and the New Zealand economy are sufficiently resilient to handle a drop in dairy prices.

Tim Macindoe : How will the Government continue to support ongoing economic growth, new jobs, and higher incomes into the future?

Hon BILL ENGLISH : The Government will set out again its priorities at the half-year update on 16 December, and this will build on the Government’s programme over the past 6 years, which has included, first, responsible management of the Government’s finances; second, building a more productive and competitive economy through a continued process of microeconomic reform in the Business Growth Agenda; third, delivering Better Public Services for the same or less money; and, finally, providing the resources to carry on with or complete the rebuild of Christchurch.

ENDS

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