[Sitting date: 03 December 2014. Volume:702;Page:5. Text is subject to correction.]

5. GRANT ROBERTSON (Labour—Wellington Central) to the Minister of Finance : What impact would a Fonterra payout of below $4 per kilogram of milk solids have on the economy and the Government’s surplus target?

Hon BILL ENGLISH (Minister of Finance): The precise impact would depend on how the rest of the economy was performing at the time, given that the current payout forecast is considerably higher than $4 but likely to be revised just before Christmas. Currently, the rest of the economy is growing solidly, and other export commodities such as sheep, meat, beef, and aluminium are all performing strongly. This is all supporting more jobs and higher incomes. New Zealand businesses and households have shown themselves to be resilient in the face of a number of global and domestic challenges, and we expect this to continue. There is no doubt that a sharply lower dairy payout would have a dampening effect both on the economy and on Government revenue.

Grant Robertson : Is it correct that a payout of $4.25 would take $6 billion out of the New Zealand economy and a payout of $3.65, as AgriHQ has forecast, would wipe $7 billion from the New Zealand economy?

Hon BILL ENGLISH : I cannot confirm the calculations but they are probably of something of that order. Of course, this has to be seen in context.

Grant Robertson : What’s that?

Hon BILL ENGLISH : Well, the dairy industry is 25 percent of 30 percent of the economy, so it is actually around 7 to 8 percent of the whole economy. The rest of the economy is actually going fairly well. Other commodity prices are up. Oil prices are down, which is going to lead to lower fuel prices, most likely. There is broad-based confidence among consumers and businesses. So in that context, there is no doubt that a drop in the dairy prices will affect Government revenue somewhere in the range the member is talking about, but the New Zealand economy can handle that.

Grant Robertson : Is he seriously saying that other parts of the economy will fill a $6 billion or $7 billion hole created by the drop in dairy prices?

Hon BILL ENGLISH : Activity in other parts of the economy will offset some of the impact of a drop in dairy prices. I will just give the member an example. The terms of trade sum up our capacity to purchase imports with our exports. Actually, while the dairy price has fallen 50 percent in the last 12 months or so, the terms of trade have actually fallen around about 5 percent from a 40-year high. So dairy prices have fallen about 50 percent, and the terms of trade—that is our ability to trade exports for imports—have dropped by only about 5 percent. So taken in the round, the New Zealand economy can handle what is a pretty sharp drop in dairy prices.

Grant Robertson : Is he aware that New Zealand commodity prices overall have declined for 9 consecutive months, and for November were 12.4 percent below last year’s figures, with 10 commodities dropping—not only dairy, but also wool, beef, logs, and timber?

Hon BILL ENGLISH : Yes, I am aware of that. But as I have just pointed out to the member, when you sum up the drop in the change in prices of our exports and the change in prices of our imports, our terms of trade have dropped by only about 5 percent. I just cannot wait until the Labour Party declares a crisis, because as soon as it declares a crisis, everything starts coming right.

Joanne Hayes : How do dairy exports as a proportion of New Zealand’s total exports of goods and services compare with the reliance by other countries on single export categories?

Hon BILL ENGLISH : I will just fill out the picture on this. The dairy exports—

Hon Members : Ha, ha!

Hon BILL ENGLISH : Well, the Opposition clearly do not understand how diversified our export sector is. Dairy exports are around 24 percent of the country’s total goods and services exports. Non-dairy agricultural exports are 22 percent, non-agricultural exports are 29 percent, and service exports are 24 percent. So the dairy sector is about a quarter of our exports. By comparison, Australian exports of hard commodities, mainly iron ore and coal, make up 57 percent of their total exports of goods and services. We are considerably less reliant on dairy exports than Australia, and the other three-quarters of our exports are not doing too badly. We have confidence in the resilience of the New Zealand economy to handle a drop in the price of one of our significant exports.

Grant Robertson : With exports flat-lining, dairy prices dropping, non-primary manufacturing slumping, housing costs ballooning, and the absence of any new ideas to diversify the economy, has he actually just given up trying to lead the economy and is content to try to ride the wave of commodity prices?

Rt Hon Winston Peters : I raise a point of order, Mr Speaker. We are not very far away from Mr Robertson, but down here we could not hear that question because over there are a whole lot of nervous backbenchers shouting at the top of their heads. They should be told to restrain themselves.

Mr SPEAKER : Order! On this occasion I will accept the point made by the right honourable member. It was a long-winded question. If the member could shorten it as he repeats it, I would be grateful. But I will ask the member to repeat the question and would be grateful if the back corner to my right would remain a little quieter so it can be heard and we do not have to listen to it for a third time.

Grant Robertson : Excellent.

Hon Paula Bennett : Come on, Mr “Doom and Gloom”.

Grant Robertson : Listen up, Paula. With exports flat-lining, dairy prices dropping, non-primary manufacturing slumping, housing costs ballooning, and the absence of any new ideas to diversify the economy, has he just given up trying to lead the economy and is prepared to try to ride the wave of commodity prices?

Hon BILL ENGLISH : No. I notice the member just fell short of calling it a crisis—just fell short. As I think I have pointed out a number of times, the signals are there now that New Zealand has the opportunity for sustained growth in the economy, not the kind of bleak picture that the member is painting. As for diversification, just last week, I think, the New Zealand Exchange had its next $1 billion listed company, which is Orion, a 95 percent export company that is there mainly because this Government floated some electricity assets, which gave the market a bit of ballast and gave people the confidence of diversifying their investment and creating a newly listed $1 billion export company.

ENDS

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