Imbalances in economy must be dealt with, says English

Finance Minister Bill English. Photo / Mark Mitchell

The recession has exposed longstanding imbalances and structural weaknesses in the economy that will have to be dealt with if we are to lift productivity and close the income gap with Australia, Finance Minister Bill English says.

Appearing before Parliament's finance and expenditure committee yesterday, he pointed to the ever-widening gap which had opened up over the past five years between the tradeables and non-tradeables sectors of the economy. The former includes exporting industries and those competing with imports, the latter is focused on producing goods and services for domestic consumption.

Since 2004 the non-tradeables sector had grown 18 per cent, but the tradeables sector had contracted by 5 per cent.

"And looking forward, conditions in the near term aren't that flash [for exporters]", he said. "The past five years have seen an extended period of a high dollar. That's one explanation."

Another might be that non-tradeables inflation - which English called a tax on the export sector - had been running around 4 per cent a year over the same period.

Economic recovery could not be a matter of getting back to the same kind of debt-fuelled consumption-led growth which had prevailed before the recession. The rest of the world could not be expected to keep on lending us money indefinitely for that purpose.

"It's preferable therefore that growth come through the tradeables sector but it's not in great shape, just when we need it to grow," English said.

"Parts of it, especially the dairy sector, have quite large debt burdens and right now we are being bundled up with other 'commodity currencies'."

Also, domestic inflation had been driving up costs for the tradeables sector for years.

"So there is an awful lot of work to do to get the export sector back to a competitive state."

English outlined a range of regulatory reviews the Government has initiated into the Resource Management Act, the Building Act, the Overseas Investment Act, the electricity market and telecommunications regulation. Over the next two years it would expect to complete that work, speeding decision-making processes and reducing costs, especially in the job-rich construction sector.

Another place where imbalances show up is in the wide current account deficit, which reflects the gap between saving and investment within the economy.

In light of that, Labour's finance spokesman David Cunliffe questioned the wisdom of reducing KiwiSaver subsidies and suspending contributions to the New Zealand Superannuation Fund.

People would save and invest if they saw the opportunity for good returns, English said.

The Government was still subsidising KiwiSaver to the tune of $1 billion a year.

"Savings in the end are about less consumption, and events are pushing New Zealanders in that direction pretty quickly anyway," English said.