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AGENDA
Presented by RAWDON CHRISTIE
RAWDON A poll out yesterday suggests National could end up with enough MPs to govern on its own after the election now being tipped for October. The pressure is thus growing for Dr Cullen's budget next Thursday to be a circuit breaker for the government. National has consistently argued that Labour has squandered the economic boom of the past eight years, but if the poll's right and National becomes the government then Bill English would present next year's budget, how would National grow the New Zealand economy. Bill English spoke to Guyon Espiner a short while ago.
GUYON ESPINER
Well Bill English let me start and begin where you began your parliamentary career with your maiden speech where you said that because politicians cannot do anything about the very few economic facts that actually matter they don’t talk much about them. I mean isn't this the case that the cost of living issues, the rising price of petrol, of food, of mortgages, are things that governments can't really do much about?
BILL ENGLISH – Opposition Spokesman, Finance
In some respects these things are the effect of international events, but there are, to the extent that government can control them it should, so the government right now faces the choices with respect to a series of levies for instance that would push the petrol price further up the biofuels levy …
GUYON But that’s going further I mean what can they do and what would you do to address those costs of living issues which are really affecting households at the moment, were you in Dr Cullen's shoes and delivering the budget next Thursday?
BILL If we were delivering the budget the top of our list would be tax reductions, the government has had enormous fiscal windfalls in recent years, it's lost the opportunity to hand those back to the people who created them, in this budget it's absolutely vital in fact it's so vital that even Dr Cullen is being pushed into doing it and that will put in the short term some cash back in people's pockets but in the longer term it's more important that it creates better incentives for work and for saving.
GUYON Okay we'll talk about those things in a second but let's just pick you up on that tax cut policy, if we go back to 2005 your tax cut package would now be worth about four billion dollars, can New Zealand afford a tax cut package of that size this year?
BILL Well Dr Cullen's gotta deliver one for this year we would be delivering one for next year if we were elected and this year he's got himself into a corner…
GUYON I want to know whether you think we can afford a tax cut package of a similar size that you were offering New Zealanders in the 2005 election.
BILL We can afford a significant tax cut there's no doubt about that and there is a real need and a real desire in the community for that.
GUYON Where are your priorities in tax, what are the income bands that you think that most deserve priority?
BILL We've focused a lot in the last 12 months or so on the person on the average wage $45,000 unless they qualified for working for families by having children of the right age which is only about 20% of taxpayers they’ve had nothing except the effect of inflation dragging more tax out of the average wage, so we believe those are people who have long deserved a break, they haven’t had it, they’ll be looking forward to something on Thursday.
GUYON Do you accept the argument that tax cuts are inflationary and that people would actually get more money, certainly mortgage holders, by interest rate drops than we could ever offer them in tax cuts?
BILL Well in some circumstances tax cuts could be inflationary, they're certainly not as inflationary as badly directed government spending, and that has been one of the drivers of the inflation that we're facing at the moment and therefore the high interest rates. I think if you look out over the next 18 months to two years almost anyone would agree that with the downturn in the economy inflationary impacts of tax cuts are unlikely to be a big problem.
GUYON One of the four tests that Michael Cullen has set himself is that he won't borrow for tax cuts, would National borrow for tax cuts?
BILL No we won't.
GUYON But you're looking at increasing the proportion of borrowing aren’t you, aren’t you looking at increasing the amount of debt the government carries?
BILL Well look the government will always run a debt programme, it does now, it goes out into the market and borrows a couple of billion a year, we don’t see any significant change in that. We have said that we want to use longer term financing which means some debt when it comes to building infrastructure because the way we do infrastructure at the moment is pretty inefficient it's costing taxpayers more than it should, so we'll be looking at using debt as every other government does and as I think this government will be in this budget.
GUYON Well Labour has taken debt to about 20% of GDP at the total size of the economy, National has previously talked about being comfortable with 25% debt as a ratio to GDP, is that the case?
BILL Well no that was two or three years ago, the debt's dropped.
GUYON What do you see the target being now?
BILL Well we'll announce that when we announce our fiscal framework but right now debt is down to about 17 or 18% and Dr Cullen's indicated it's likely to lift in this budget. Look New Zealand doesn’t have a debt problem it has a growth problem, we have to raise our longer term economic performance. Debt was a problem 15 years ago it isn't now.
GUYON And how do we do that Bill English, how do we raise our long term economic performance?
BILL Well we're laying out a programme over the next three or four months, top of that list is lower taxes because it improves the incentives in the economy, secondly we believe that we need to have some higher basic educational standards, so you have a workforce with the competencies that can handle higher productivity and the demands of higher productivity. We also believe we need more infrastructure sooner, the way we're doing it at the moment is inefficient even though there's agreement …
GUYON But that all costs money doesn’t it, that all costs money and you’ve talked about reducing the proportion of government spending from 32% of GDP to 27%, that was the target some time ago, is it still your aim to reduce government spending as a proportion of the economy?
BILL Well we've signalled that we will be looking very hard at the effectiveness of government spending rather than just going for slash and burn reductions.
GUYON I know but we need to talk numbers here don’t we, we need to know what sort of level of government spending you think is good and efficient and proper in the economy, have you got that target because your leader was on this show a couple of weeks ago saying that you would have a target for that?
BILL Yeah well look in the long run we will have some target.
GUYON Well what is it?
BILL Well I can't tell you what that is till we announce our fiscal framework, but the first job is going to be constrain the rapid growth of government spending, you can't just wade in and slash it around, I mean the government has been growing government spending at about 8% per year, that has been despite the warnings of the Reserve Bank that that has helped keep inflation up higher for longer.
GUYON Well why not be bold and cut government spending, if you look across the Tasman Kevin Rudd and the Labour government is slashing 33 billion Australian dollars over four years, I mean why doesn’t National be up front and actually cut government spending?
BILL Well there's a bit of smoke in mirrors in Kevin Rudd's budget and we would want to be focusing I think a bit more thoroughly on the effectiveness of the spending, John Key's indicated we believe that for instance government's a bit top heavy in growing the Wellington bureaucracy, we want to stop that growth, we also need more productivity through our public services because the public services haven’t been as productive as the rest of the economy in recent years. So there's quite a big job there but we'll be pretty moderate and careful about it, I think that’s the point, we're not going to be wading in there on the pretext of a downturn, government spending is the support that many people have particularly when times are tough.
GUYON Well let's talk about those tough times because a tough economy is going to lead to more unemployed presumably. Are you comfortable with the level of welfare benefits that are set at the moment?
BILL Yeah we're pretty comfortable with it, there's been some discussion in recent times that its relativity to average wages has fallen behind and in time once we've dealt with the priorities of getting income tax rates down we will have to pay attention to issues like child poverty, because I think that’s where it grinds in the most is on those tens of thousands of children who are born into beneficiary households.
GUYON Will you look to cut benefit rates because there's some comparison with 1990, a National government comes in it inherits a tough economy and then turns around and has to tear up the manifesto and cut benefit rates, can you rule out that happening under National?
BILL We won't be cutting benefit rates, in fact I think now you have pretty much bipartisan support for the current benefit regime, Labour in nine years of plenty of money haven’t raised them, we won't be cutting it.
GUYON Can I talk about the people who are in work and the rules for those people, do you see substantial changes if any change at all to employment law should you take office?
BILL Well we'll be proposing some changes to the Employment Relations Act, we won't be going back to the Employment Contracts Act.
GUYON What are they?
BILL Well we'll announce those when we announce our industrial relations policy.
GUYON Can you give me a rough idea of what the basic changes or whereabouts that you're worried about the current law.
BILL We've been concerned that it has a strong focus on process over substance, for instance that where people are dealing with difficult employment issues you know they have to follow all exactly the right steps rather than focus on the actual substance of the issue, we've also floated the idea in the last few years about the 90 day trial period for new employees, we've been discussing …
GUYON Weill you go ahead with that Mr English should you be the finance minister will you go ahead with the idea of making it easy to hire and fire a worker in the first three months.
BILL Well we'll announce that when we announce our industrial relations policy, but we've been discussing those sort of proposals with unions, with business, just to make sure that we get the balance right.
GUYON Does the economy need that though?
BILL Well the economy's gonna go through quite a shake out and I think we are going to see a bit more realism. There's been a view in the last seven or eight years that you can just keep legislating new entitlements and there's no cost to that, well some people are now paying with their jobs, so I think from here on we're going to have to focus on productivity rather than just on entitlement, and again across the political spectrum there's agreement that productivity is our big issue, if we are going to afford the entitlements we have and to continues growing incomes we need strong productivity growth.
GUYON Another structural thing that people talk about in the New Zealand economy is a problem that we've put all our money into housing, we're currently seeing a downturn there, but presumably this is going to all happen again, what are you going to do to stop this sort of boom and bust cycle that we seem to get ourselves into in the housing market?
BILL Well it's a bit difficult isn't it because it's New Zealand's preferred asset and preferred investment, I think the downturn does give us a bit of space to think about what might be reasonable alternatives. I must say that people who are facing a drop in their house values and a government who's looking at it would be pleased we don’t have the complexities of a capital gains tax in a falling market. National believes we should be pretty careful about changing the rules around housing because it has been a successful investment for many New Zealanders.
GUYON One of the things that the Labour government has put forward as an alternative to try to get people investing in things other than housing is the Kiwi Saver Scheme to try to build up some investment and to try to deepen the capital markets and get people to actually spend their money that way, can you tell us today whether you will keep in its current form the Kiwi Saver Scheme?
BILL Well we will keep Kiwi Saver, whether it will be in its current form we'll announce when we're ready closer to the election, we're finding people raising a number of issues with it. We're particularly concerned about the fairness in the workplace where if you can afford to get into Kiwi Saver the benefits are very substantial, but someone who's working alongside you in the office or on the production chain may not be able to afford it because they’ve got a big mortgage and three kids and they miss out on the benefits altogether and that is a concern.
GUYON That’s a good place to leave it – Rawdon.
RAWDON John Roughan you want to pick up what's happening this week a bit.
JOHN ROUGHAN – New Zealand Herald
Yes Mr English the economy is looking pretty flat, job have been lost, consumer spending is down, activity feels a bit low, in this situation if you were Minister of Finance what kind of budget would we see this week?
BILL Well if that was the whole situation I think Dr Cullen would be delivering the sort of budget that he's likely to deliver which is you know fairly cautious, but his big problem is the political problem that goes along with all that and he's going to find it very hard to meet the political expectations. The right budget to present though is one that focuses in hard on the effectiveness of government spending and productivity enhancement in the economy, because regardless of the downturn the best hope for people who are feeling the pressure is that we can get through this quickly and that we can get back on a track or up on a track of 3% plus growth because that’s what delivers real income increases to them and I'm a bit concerned that the budget will focus too much on Labour's short term needs and not enough on the government's obligation to make sure that as this downturn winds its way through we're back on to a higher path of growth and better incomes.
JOHN The big fear right now is that if you were Finance Minister we'd be getting tax cuts that the Reserve Bank would react to fairly harshly and that would prolong the downturn.
BILL Well that’s a bit hypothetical since we're not the government, in fact the Reserve Bank has been giving warnings about budgets over the last two or three years and the warnings they were giving to Labour were that continued high government expenditure would put interest rates up higher for longer. Last year despite that explicit warning even from Dr Cullen to his Cabinet Labour ignored it, and now everyone's paying the price with higher interest rates than we need and Dr Cullen won't be able to undo that damage in this budget.
BRENT EDWARDS – Radio New Zealand
On tax cuts Mr English I mean will you if not in your first budget but give a commitment that over time you'll get rid of that 39 cent top rate?
BILL Well we'll make our plans clear when we announce them, our top priority is the sort of people earning the average wage and the incomes that have taken them up over $60,000 and into that top tax bracket that’s not what Labour promised, in the last election they said they'd do something about it and then they backed done on that promise they broke the promise, so we need to keep faith with those people, that’s our top priority.
BRENT I mean you’ve been talking about productivity quite a bit, I mean most political parties have but National did vote against the tax cuts for business and the tax breaks on research and development which presumably will feed into productivity gains, what's your view on that and what can business expect out of a National government?
BILL Well I think they can expect a government that has a much better understanding of what drives business and I think a bit more respect for the fact that investment and profit is what provides jobs and increased incomes. We want to see them operating in a tax system where they're less inclined to try and work the tax breaks and more inclined to get their businesses working better, we want to make sure they have an industrial relations environment that’s got a good balance, enables them to achieve a productive workforce, but probably most importantly less of the interfering government with a wide range of regulations as answers to every problem, where business and their employees have to carry the costs.
BRENT Well in terms of regulation where would your priority be in terms of getting rid of regulation?
BILL Well I think first up would be regulation around infrastructure, we've undertaken to make some changes to the Resource Management Act, we'll also have to make changes to legislation around roading and other large scale infrastructure projects because at the moment it's just too slow, takes too long, it's too expensive and consumers and taxpayers miss out.
RAWDON Mr English it's a tightening economy here, funds have gotta be found somewhere particularly we're talking the sort of tax cuts which well we don’t know what levels but what we may be expecting, now the National Party has said that Wellington's gonna be a source of freeing up some funds by cutting back on the levels of civil service there?
BILL Well what we've said is we'll constrain the growth.
RAWDON But even if the growth doesn’t move, if no more jobs are created, according to a Treasury report we saw this week the wage bill will still increase by 58% over the next four years.
BILL Well we are quite concerned about that, that there's a momentum built up around core public service spending that will be quite hard to constrain, but look we have a public service who I believe can function much more professionally than they do now because the current government has created an environment of fear and bullying, we want to show them – demonstrate some leadership to demonstrate that we understand they have a critical role particularly if we are going to have a programme that has a strong impact on the economy, so we will be constraining their growth, we will be looking through the priorities – look there's spending in there which is reckless and unsustainable, we want to bring that to a halt, on the other hand there'll be some areas where more is needed, so we're being pretty careful about that until we can have a good look inside the machine to see just what state it's in.
JOHN Just coming back to the longer term picture and you're talking about increasing debt a bit to invest in infrastructure and Mr Key talks about leveraging more growth off what we have now, but we haven’t – times getting on and we still haven’t heard any specific suggestions as to what this debt is going to be invested in. What sort of infrastructure do we have in mind?
BILL Well I think the infrastructure needs are pretty well understood now, you’ve got a whole list of projects of roading and rail, you’ve got big needs in the environmental area, processing of water, local bodies have got huge bills now. In fact if you look out over the next ten years there's something like 50 to 60 billion of infrastructure spending required between central and local government and we believe that’s going to need a common investment framework between central and local government, you can see what happens when it breaks down you get a ratepayers' revolt because they won't sustain 9 and 10% rate increases year after years they're just not going to pay it. So one way or another between central and local government we need to get our infrastructure spending more effective, more efficient, and better value for money and I'm quite confident we can do that.
JOHN That doesn’t sound like the sort of exciting new ideas that'll get us up the OECD rankings in a hurry?
BILL Well we'll be talking about you know specifics, John's already mentioned I think one major initiative which is fibre to the home, ultra fast Broadband and that’s been a bit controversial, but we believe it's part of future proofing New Zealand, that if we want to get up the OECD ladder there's some basic infrastructure we're going to have to have to be competitive.
RAWDON We're hearing a lot about the philosophical areas of growth but it's all expensive, I mean this is what I still don’t understand is where these funds are gonna come in a tightening economy, we've now got the railways effectively enforced expenditure over the next three or four years given that you've committed were you to be the government to not selling any state assets.
BILL Well I am very concerned about the railways decision because there's you know easily a billion dollars plus involved and it's not theoretical money or monopoly money, that’s real cash that’s come out of taxpayers' pockets in the last few years, I mean people are running overdrafts to pay for the railways, that’s what's actually happening, and the ongoing costs of it could turn out to be quite significant, that is going to limit some of the other choices we would have wanted to make.
RAWDON Given that it's a millstone around our necks what's the long term plan potentially for ownership of the railways?
BILL Well we're committed to retaining ownership now that the government's bought it back, it's our job despite our disagreement with that decision to get on and be good stewards of the railways, we need to minimise the cost to the general taxpayer, maximise the efficiency and I suppose now the environmental impact of the railways, but we're gonna have to be pretty careful about it, for instance it appears the government's promised some kind of continued subsidies for one trucking operator, well if you're a family owned trucking operator out there and you think the government's going to undercut your business that’s bad for everybody, so there's some quite complex issues.
RAWDON But a National government is committing to this long term beyond potentially the first term of government?
BILL Well look Labour paid a huge price for this asset, any move to sell it would crystallise a large loss, there is no one else like Helen Clark out there wanting to buy the railways so we are going to have to keep it until we can get back the value that taxpayers have put into it.
BRENT But isn't this a bit of a problem with your economic policy Mr English in the sense that you are often disagreeing with what the government's doing but then saying – putting your hands up and saying but don’t worry we're not going to change it. If the railways purchase is such a bad deal isn't it better to cut the losses and get rid of it rather than commit yourself to a whole lot of investment hundreds of millions of dollars which presumably you think probably isn't that effective?
BILL Well we've decided the loss would be too large up front to cut the losses, as one of the Australian commentators said it's a dog of a business and Toll are ecstatic they got rid of it, so we don’t really have that choice, we will use as the owner of the railways the full range of tools that are available to a government with public private partnerships, tendering for efficient operators, cooperative arrangements with other people in the business, we're just going to have to get the best value that we can, but with respect to Labour's list of things that they do look some of them will turn out to be reckless and unsustainable and we won't support them. Some of the things they do in the next wee while may be well targeted on relieving hardship and we may support those.
RAWDON Okay Minister, Bill English thank you very much for joining us this morning.
