PM John Key says open to loosening Budget purse strings with infrastructure spending if economy slowed back to 2009 levels, but growth still robust and no current need for fiscal response

By Bernard Hickey

Prime Minister John Key said he was open to using the Government’s strong balance sheet to support economic growth with a fresh burst of infrastructure spending as it did from 2009 to 2011, but he did not see any signs of the economy sliding back to 2009 levels.

Key’s comments came after ANZ Economist Cameron Bagrie said in a weekly note it was time for the Government and Councils to use their strong balance sheets to support the economy and help the Reserve Bank.

Key told his weekly post-cabinet news conference he was still confident about the economy despite the recent slumps in dairy prices and business and consumer confidence.

He said the economy was still growing robustly thanks to export growth from the tourism, kiwifruit, wine and meat industries, along with solid construction activity in Christchurch and Auckland.

He said, however, the Government remained open to loosening its fiscal stance if it needed to, as it did in the depths of the Global Financial Crisis in 2009 and after the 2011 earthquakes.

“We’ve done that in the past and I’m confident that we’d do that again,” Key said.

Key said China’s slowdown was more of a concern than Greece’s financial crisis, given Greece was New Zealand’s 74th largest export partner, although he was “not terribly worried about China.”

He said ANZ’s economists may be getting “a little ahead of themselves,” by calling for a fiscal response and that there was no suggestion from Treasury or the Reserve Bank of the need for such a fiscal response.

“Put it this way: Treasury and reserve bank are not coming over and saying ‘Houston, you have a problem,” he said.

Key said people worried about a return to a recession “needed to take a deep breath.”

“We’re a long way from that feeling of 2009,” he said.

Key said the Government would prefer to use infrastructure spending rather than any increase in operating allowances if it had to loosen its fiscal stance.