Hon Dr Michael Cullen
Minister of Finance

6 March 2008 Media Statement

Key’s judgement on the economy called into question

The importance of judgement on the economy has been brought into sharp focus by the release of today’s government financial statements, Finance Minister Michael Cullen said.

While losses in revenue are expected to be temporary, the headline operating balance is $4.2 billion lower than forecast and is now in deficit by $394 million. The decline is driven overwhelmingly by losses on investments during the recent global sharemarket downturn.

“The downturns reported today are significant,” Dr Cullen said. “No one should make any attempt to brush them aside.

“But the Labour-led government will not have to respond to this downturn with a massive borrowing programme. We will not have to cut superannuation as Bill English did in 1999. We will in fact be able to deliver a strong Budget in May.

“The ongoing strength of the government’s fiscal position is not accidental. We invested heavily in New Zealand’s success during the strong growth of recent years, but we never took our eye off the long-term.

“When the operating balance hit $11.5 billion just 16 months ago, John Key told New Zealanders that they were being over-taxed by $2,875 per year. He said that all $11.5 billion could be delivered back to them in tax cuts without cutting government spending. His view was widely reported by media.

“If we had followed his advice and delivered an $11.5 billion tax cut programme, crown debt would be headed for 50 per cent of GDP, compared to less than 20 per cent today. Even if we had slashed that tax cut to $6 billion, debt would be rising to 30 per cent of GDP by 2012, with associated annual debt repayment bills in the billions.

“The downturn today would be biting much, much harder and the government would be in no position to protect families and older New Zealanders from it.

“Every day in government is about choices and judgement. New Zealanders need to know that their politicians can be trusted to manage the economy in the long-term interests of our country and not just make the best deal on the day.”

Attached: Key statement, 11 October 2006, no longer available on web

ENDS

[For Key release see also: National - Huge surplus shows Labour has gouged taxpayers]

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