John Key gave his first substantive response on Saturday to last week's Long Term Fiscal forecasts from Treasury on the need to reform New Zealand Superannuation, describing them as "nonsense".
Talking to Lisa Owen on The Nation, Key referred to how Treasury's forecasts 44 days before the Budgets in 2015 and 2016 the Treasury's forecasts for the Budget were "a mile out".
Key was asked about the Treasury's forecast for a surge in net debt to over 200% of GDP by 2060 without reforms to New Zealand Superannuation.
"The cool thing is Treasury can’t get their predictions right in 44 days, let alone 44 years. They constantly get it wrong," Key said.
He referred to the Treasury's forecasts in 2008 for a rise in net debt to 60% of GDP by 2022/23, whereas instead it would be around 24.5%.
"Okay, so what really happened was under a National-led Government, we got on top of the expenditure that the country was facing. We had years of zero budgets and being cautious with our expenditure and all of those things. We also grew the economy much faster than they thought," he said.
Asked if he was betting his legacy on Treasury being wrong, he said: "I’m telling you it’s a load of nonsense, because they can’t get predictions in 44 days right, let alone in 44 years."
"My point is these are very static models. 44 days before putting together Budget 2015 and Budget 2016, the Treasury were a mile out in terms of predicting what the budgets would be."
Side-stepping flat productivity too
Elsewhere, Key was also dismissive on the issue of productivity, where real output per hour worked has been flat for four years.
"Productivity’s an immensely difficult thing to measure," he said.
"I can show on the shop floor of so many companies in New Zealand where productivity is rising. It can be as a result of lots of different things, for instance, greater emphasis on one particular sector which might be deemed to be lower productivity being a bigger share of the economy," he said.
"So, I mean, all I can tell you is if you look at New Zealand on a relative basis compared to other countries in the world, because you never do an apples for apples comparison, you would say by any definition we’re doing well. We’re increasing the number of jobs, we’re increasing wages, and we’re back in surplus."
4th worst in the world
Key's comments on productivity turned out to be topical because this morning the Productivity Commission's Paul Conway published a landmark 86-page paper on New Zealand's productivity performance. It looks at why New Zealand's productivity performance has been the fourth worst in the OECD since 1996.
The report uses the Longitudinal Business Database (a type of 'Dunedin study for businesses') to measure productivity performance at the firm level.
Conway said the report showed New Zealand needed to shift from working more hours per person to focusing on generating more value from time spent at work.
“With labour force participation forecast to decline with population ageing, the focus now needs to go on lifting productivity,” Conway said in releasing the report.
"Our report gives the Government further insight into why our productivity performance is not as good as it could be and informs possible changes to the Business Growth Agenda that could make a difference," he said.
The report suggested further work could be done on housing market reform so more people could work in Auckland and on improving the skills composition of migrants. It also pointed to the need for improved competition in the services sector and better connections to international markets.
The full report is well worth a read and I'll be diving deeper into it in columns and reports in the months to come.
English highlights rising rates
Elsewhere, Corin Dann interviewed Bill English on Q+A about interest rates, the Reserve Bank's moves on the housing market, the pre-election tax and families package and the Kaikoura quakes.
English highlighted the rise in long term interest rates since the election of Donald Trump as a healthy normalisation that would help rebalance the exchange rate and take some pressure off house prices.
"The interest rates starting to rise is a healthy sign of normalisation in the global economy and here. I see the NZ dollar’s dropped back under US 70 cents for the first time in quite a while," English said.
"That would be a healthy rebalancing for our export sector. So, in a sense, the thing we’ve been waiting for for three or four years — that is a US economy with enough strength to lead to a rise in interest rates — is starting to happen."
Inflation was also likely to rise to more normal levels, he said.
"The criticism for the last couple of years has been inflation too low. This is what I mean by normalising. If interest rates come up a bit, people will get a bit more sensible about the debt and the housing market. A bit of inflation is actually not a bad thing in an economy. We’ve probably had not quite enough."
Asked if the Reserve Bank needed more tools to control the housing market, he pointed to the fact the Reserve Bank's November 10 cut in the OCR had not been passed on to mortgage borrowers as "a pretty clear signal to borrowers and households we’re on an interest rate floor at the very least."
"And when they see rates rising, that does have an impact. Even if you know that they’re going to rise sometime, it’s still different when it actually happens, and they’ll be recalculating what their debt servicing is going to be, and I think it’ll make our housing market a bit more sensible."
In other news...
Nick Smith announced on Sunday that MBIE had agreed to buy a 0.53 hectare site in Te Atatu from NZTA to build 60 apartments, including 20% for less than NZ$650,000 and 20% for social housing.
TVNZ reported its last Colmar Brunton political poll of the year (taken from November 12 to 23) found support for National rose 2% since September to 50%, Labour rose 2% to 28%, the Greens fell 2% to 11% and New Zealand First fell 1% to 10%.
John Key is scheduled to have his weekly post-cabinet news conference this afternoon at 3.15 pm.
Parliament resumes for its final three-week sitting session of the year on Tuesday.
The Reserve Bank is scheduled to publish its half-yearly Financial Stability Report on Wednesday at 9 am.
Have a great week ahead. Look out for my Herald on Sunday column on the broken social contract of globalisation below.