10 Oct 2016

English: Focus still on debt, coy on tax cuts

2:17 pm on 10 October 2016

A more upbeat tone about the prospects for the global economy is not stopping the government from preparing for the worst.

Bill English at a social housing announcement in Northcote

Finance Minister Bill English Photo: RNZ / Claire Eastham-Farrelly

Finance Minister Bill English attended the International Monetary Fund (IMF) and World Bank gatherings in Washington last week.

Mr English shrugged off grim warnings about weak growth, widening inequality and record global debt levels, saying he had been reassured a fresh financial and economic crisis could be avoided.

But he would stick to his plan of reducing net debt to 20 percent of GDP by 2020, saying that strengthening the government's financial position remained a sensible strategy amid so much economic uncertainty.

"I think it confirms the importance of New Zealand sticking to the plan to get debt down. That even if I'm a bit more optimistic about the risks in the global economy, there are still quite significant risks there.

"And if they eventuated, we'd want to be in the position in the next three, five, seven years to be able to borrow more again if that's what's required. So we have to get debt down while the going's good," Mr English said.

He said politicians now realised they could not rely on central banks to generate growth, and investment in infrastructure and skills. Regulatory changes were needed to get business to hire and spend more, he said.

He remained coy on further tax cuts, saying that depended on the strength of the economy.

"We haven't made decisions about that. Before Christmas there'll be a new round of [Treasury] forecasts that will tell us whether there is much room in the government budget for tax cuts.

"We do know there are considerable expenses coming up, some related to growth like helping fund more housing and public transport in Auckland, and some related to intractable social problems like more money needed for more prison beds.

"So those are things we have to do and we'll have to see what other room there is."

There was a growing acceptance globally that relying on central banks to print money and the use of negative interest rates was not generating enough growth, and policies such as more government spending were needed, Mr English said.

But while countries in general needed to loosen the purse strings, he said he would not.

"The IMF is telling governments around the world that they need to spend more. It's more applicable to economies like the UK, Europe and Japan where they've got very low economic growth - 1 or 2 percent,, whereas we've got 3 to 3.5 percent.

"In New Zealand we are increasing our spend anyway because we've got a growing population, we need more infrastructure to underpin that growth, and we're also looking at more effective investment in our public services.

"So we may end up doing some of the same things with fiscal policy, but for the reason that we can see opportunities to invest effectively rather than just shovelling money out to try and grow the economy."