Nick Smith - Nelson MP, Minister National Government

National's action plan for the economy

12 August 2011

New Zealand is in far better shape than the US and Europe because the John Key-led Government has had a clear plan since 2008 to re-balance the economy away from increased debt.

Our greatest vulnerability is our private debt. It grew by an astonishing $12 billion a year every year under Labour. We were living on a debt-fuelled bubble. The problem was compounded by Labour ignoring calls for proper regulation of finance companies Private debt grew to $183 billion, or 87 per cent of GDP. That compares worryingly with troubled economies like Portugal 109 per cent, Ireland 98 per cent, Spain 92 per cent and Greece 90 per cent.

National's tax reforms were about addressing this household debt problem. We increased GST to discourage consumer spending and reduced income tax to encourage work and saving. We've reversed Labour's decision to abolish the SFO and given teeth to a new Financial Markets Authority. Our growth plan is based on exports. The strategy is working. Households have reduced their spending and are saving. Credit card debt is down. New Zealand's private debt has dropped in the year to March 2011 for the first time in over a decade. Exports are up 4.5 per cent – the strongest growth in a decade.

Public debt is less of a concern for New Zealand. It currently stands at 18 per cent of GDP as compared to the US at 84 per cent and Greece at 120 per cent.

Treasury's report to the new Government in 2008 on Labour's policy settings had New Zealand running deficits every year for more than a decade and public debt growing to more than 70 per cent. In our first Budget, we pulled it back to six years. In our second Budget, we pulled it back to four years. Our third Budget this year gets us back to balance in three years. National's plan ensures New Zealand's public debt does not exceed 30 per cent of GDP.

Labour has criticised every one of our policies to get debt down. They dismiss the credit agencies as irrelevant. Labour's economic plan has New Zealand running larger deficits for longer. It would add $18.5 billion to our public debt.

Prudent financial management is difficult. An example is ACC, where former ACC Minister Maryan Street allowed claim costs to soar by 50 per cent in three years, resulting in a $4.8b loss in 2008-09. This made up half the total government deficit that year. Cleaning up this mess has been unpopular work. ACC is now running $2.5b a year surpluses and paying off debt.

The key to managing the economy is to maintain National's plan of encouraging household savings, growing exports, regulating the finance sector, carefully managing Government spending, and getting New Zealand back into surplus sooner.

ENDS