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November 16

Note: All transcripts are copyright to Front Page Ltd but may be used PROVIDED attribution is made to TVONE and Agenda

BILL ENGLISH

RAWDON By tomorrow we'll know who's doing what in John Key's first cabinet but one MP who already knows what his job will be is Finance Minister designate Bill English, and he acknowledges that he confronts the biggest challenges of any post war finance minister. On Friday he said we were facing the greatest destruction of wealth since the 1920s he's in our Wellington studio, here's Guyon Espiner.

GUYON ESPINER

Well Bill English you heard Rawdon there talk about that destruction of wealth which you’ve been mentioning, what sectors of the economy are going to be hardest hit by that destruction of wealth?

BILL ENGLISH – Finance Minister designate

Well it is happening on a much larger scale overseas than here thank goodness and I think that’s the source of greatest uncertainty, we just don’t know what it means for our economy when that destruction of wealthy is going on so significantly in our export markets. In New Zealand I think we're some way through that process we've been in recession for nine months already or probably 12 months, we've had a big drop in the housing market already, we are seeing a further sharp edged slowdown in the property market, there's probably some way to go in the agricultural sector with asset values coming back, but I don’t think we're talking as sharply here.

GUYON You're talking about farms being revalued and loss of value there?

BILL Well I think that process is going on now, so look the dynamics of this recession are reasonably well known, we know it's being caused by our own households having to shut down so they can deal with their very high levels of debt and overseas markets that are going backwards, the uncertainty is just how long or how severe that process will be.

GUYON You’ve got an assistance package already mapped out to help people who may lose their jobs during this recession, are you expecting to have to provide further assistance, for example helping a farmer stay on the land if the banks get tough?

BILL Well in that specific example at the moment no we're not, but let's stand back a bit to see just what is in train here. New Zealand has had a significant fiscal stimulus from the 1st October with the government's tax cuts, it's got another one coming in the 1st April after we pass our tax cuts and by international standards that stimulus is quite large, much larger for instance than the Australian package that was announced just a while ago, and alongside that we've got the Reserve Bank who've got the capacity to drop interest rates because our interest rates are quite high. For this economy which is pretty flat we've got some quite significant stimulus in the pipeline and that is going to be of much greater importance than assistance packages for individuals.

GUYON Some economists are talking about unemployment of say 7%, do you think that’s a real prospect?

BILL Well look it's possible, unfortunately the forecasts for unemployment keep rising every time there's a new bunch of forecasts, up to now New Zealanders have enjoyed a fairly good sense of job security, that is going to be eroded and that’s why during the campaign we announced an assistance package for people who qualify for unemployment benefit.

GUYON Treasury talked this week about an extra five billion dollars worth of government debt over the next five years, you have previously had a debt to GDP ratio of what 26.9% you were talking about, are you thinking that you're going to have to increase that?

BILL Well it is going to increase, unfortunately we don’t get much choice about where the debt levels get to. There's a couple of things driving those higher government deficits which is what's driving the debt, one is that when we look back you can see that high inflation has been a big help to government, it's pushed up tax revenue quite considerably over the last seven or eight years, 3 to 4% inflation, well over the next couple of years inflation's dropping away and that’s going to reduce the size of the tax base, and then of course there's a lack of growth in the economy, so those events in some respects are going to have such a big impact on debt that you can't chase those numbers with spending cuts on government spending, so we're going to proceed with the promises that we've put in place, at the same time debt is going to rise.

GUYON Can we get some markers in the ground. In the very first days of your administration you were very critical of the Clark Cullen government for the fact New Zealand had slipped down the OECD ladder of rich countries to something like 22 out of 30, have you got a goal of lifting New Zealand back into the top half of the OECD and by when?

BILL Well we'll be talking about that over the next period, you'll just have to wait and see, but the real problem is not so much whether there is a goal or not a goal it is that over the last seven or eight years New Zealand has lost productivity and competitiveness and part of this adjustment we're going through is that resources are going to move to the export sector where our growth was driven by households' borrowing over the last ten years, over the next ten years credit won't be available in the same way and the export sector's going to have to grow so that means a strong focus on productivity and competitiveness and if we make those deep decisions of detail and you have to get hundreds of them right, then you will lift our economic performance.

GUYON But surely you’ve got a goal I mean your tag line in the campaign your leaders was ambitious for New Zealand, I mean what is the ambition?

BILL Well as I said that'll unfold over the next wee while, you'll just have to wait and see.

GUYON And what about this idea of people leaving to Australia, we had John Key during the campaign stand in a football stadium in one of his promotional videos to illustrate the fact that 47,000 New Zealanders had left to Australia over the last year, have you got a goal to reduce that?

BILL Well we certainly do want to reduce it and I think people responded to the contrast there where National acknowledged openly that it was a problem while the former Labour government said that the ones who were coming in were smarter than the ones who were leaving so on balance it was a good thing. I mean that was a demonstration I think of the kind of political leadership you'll see from John Key which is aspirational and taking a run at winning the competition between us and Australia for our talent.

GUYON Can we look at some of the details of what your measures are going to be in economic policy and in labour policy, for example you’ve got the 90 day trial period to allow an employer basically to take someone on as a trial period within that three months, how quickly are we going to see that come in?

BILL Well we will be aiming to introduce as much legislation as we can before Christmas, the parliamentary sitting period will be quite brief.

GUYON Will that law be part of that package?

BILL Well that’s yet to be finally determined, the focus before Christmas will be on getting tax and KiwiSaver changes put through and into law, this is the latest election we've had for a long time in New Zealand and so there's quite a small window….

GUYON I'm just wondering how critical you see that being to give businesses the chance to take someone on in a risk free trial period, is that a critical part of the economic response to the recession that we're gonna be in?

BILL Yes we see it as very important for people who are on the margins of the workforce to be able to get an opportunity to prove that they can do the job.

GUYON And what about this idea of investing 40% of the super fund in New Zealand, how soon is that going to happen?

BILL Oh look I think that will be put into action in the earlier part of the next year and the important thing there is to make sure that we are pulling every lever we can to get available investment capital in New Zealand because we'll to build business confidence, confident businesses will invest, that is going to be the only way out of this recession.

GUYON What about the Emissions Trading Scheme, can we still have those additional costs put on households and put on business in some very tough economic times?

BILL Well that’s going to be a matter for some considerable debate and National has signalled that it wants to alter the existing Emissions Trading system, it's also been a matter of some coalition negotiation and we'll see the results of that over the next week or so, so I expect that we will have a modified Emissions Trading system, it's certainly our intent to get through that debate and get the rules settled because if we're going to have confidence among business to invest they need certainty about what the rules are about the ETS so we can't afford to have a debate that drags on.

GUYON Are you going to delay any elements of it? We saw Labour do that didn’t we – are you going to delay any aspects of the Emissions Trading Scheme?

BILL Well look that’s a matter for discussion but we are focusing on getting through any decisions relatively quickly in the new year so that business has certainty about what the ETS rules are.

GUYON Can you tell us where you're going to cut back on government regulation?

BILL Yeah we're going to start with the Resource Management Act and we would hope to get some quick amendments to that introduced before Christmas, then another area we focused on during the campaign is around the Building Act, there's a whole new paraphernalia of regulations including the famous shower heads around the building and construction sector, and that’s going to be a sector crying out for confidence, and we need to reduce the burden of red tape there.

GUYON So just on the Resource Management Act I mean how is that going to impact, I mean are we going to see it being easier for property developers, are we gonna see energy projects built that weren't built under Labour?

BILL Well with respect to energy there's a couple of straightforward changes we want to make there, for instance getting rid of the ban on thermal generation which we think is going far to far and holding back necessary supply of electricity that we need. With respect to the RMA the changes are all designed to reduce the time and the cost of making decisions, communities will still want to have an argument over whether they have a wind farm on the nearby hills, but the time and cost of these decisions is what puts people off making the investments.

GUYON There have been cultural aspects to this too, the socalled Taniwha Clause where you can actually have cultural objections are you looking at any changes in that respect?

BILL Well we'll be consulting with the Maori Party over this because it's a major piece of legislation but it's interesting listening to them, they have their own concerns about the ability of Maori business to invest, and we're finding a surprising degree of alignment, I mean these are people who want to get on with development as much as have respect for their own culture, and I think it'll be an interesting exercise getting the balance there but we shouldn’t assume that Maori interests are going to be opposed to these kind of changes, in many respects they're as keen on them as anyone else.

GUYON Right, that’s all from me Bill English, thank you very much.

RAWDON The panel and I now have a few questions – Brian you wanted to pick up on debt.

BRIAN FALLOW – New Zealand Herald

Yeah Bill I'm struck by your comment about not having much choice about where debt levels get to, I mean that’s true in the short term but in the medium term you have to form a fiscal strategy and have some view about what level of gross debt to GDP you're comfortable with, what's your thinking there, I mean are you happy with the idea of permanent deficits and relentlessly rising public debt?

BILL No we're certainly not. The development of significant ongoing deficits and relentlessly rising debt has just come up in the last two or three months and in fact right now we're working on whether the current forecasts comply with the Public Finance Act, because it was set up to make sure that governments ran surpluses on average through a business cycle and kept debt at reasonable levels, and we will be putting together a budget policy statement before Christmas which will be the policy on how to deal with this situation, and I'd have to say it's a situation that hasn’t been envisaged by politicians over the last 15 years, it's a pretty fundamental change in the way the government's accounts are working.

BRIAN You make of course a good point about the scale of the international crisis but we are some way into our own recession already as you point out in markets like the housing market, the oil market, the forex market are all moving as you would expect and probably have further to go, both monetary and fiscal policy have eased, what more needs to be done to cope with this shock, other than just endure it?

BILL Well I think we need to demonstrate to business that at least to the extent government can influence these things that it's taking a pretty aggressive attitude around measures that will lift their confidence and that is to do with improving the investment environment because that it something government has direct influence over and that is around the lower taxes, getting some of these regulatory regimes sorted out, demonstrating that the government's going to look after people who are on the sharp edge of this recession because that gives people a bit more confidence to get on with the changes that are necessary, but I think you're making a very valid point that New Zealand has been in this adjustment process quite a lot longer than most of the other economies we compare ourselves with and certainly longer than Australia who are only just in the last couple of months heading into recession, some almost a year behind New Zealand, so we want to make sure that in that process people are protected but it is part of the adjustment that needs to occur where we move to the productive side of the economy, the resources go there, and that’s why competitiveness and productivity now matter so much.

NEVIL GIBSON – National Business Review

Bill you’ve worked in the Treasury and obviously the business community have got a lot of confidence that you can handle the public side of the fiscal thing, but maybe some people in business have been a little bit critical that you don’t actually lend much of an ear to them and you talked about how the private sector will be needed to bring us out of the recovery, are you going to take up any of the points that have been raised by Lloyd Morrison and others on ways to help business that don’t involved spending public money?

BILL Oh certainly and we've got a reasonably detailed programme laid out now. I think the important thing – and look we're listening to these guys now we talk to them pretty regularly and we'll be setting up some more formalised processes once we become the government to make sure that input is there. I think it's going to be important to break that discussion down into actual decisions and actual policies that we can execute. We can have a discussion for instance about having a goal that’s fine let's set the goal, but the goal is meaningless unless there's some shared responsibility about executing particular policies. A lot of these policies are about detail there isn't a silver bullet here and the business community I find is quite realistic about that, but also have a strong expectation that a National led government will be supportive and we expect to be able to demonstrate the steps that we are taking which one way or another are going to improve the investment environment.

RAWDON Bill English let me ask you how long you think this recession could possibly last, worst case scenario.

BILL Well, what's the definition of coming out of a recession. If you look at the Treasury forecasts the ones released by Dr Cullen anyway, they show the economy growing in the 12 months from March 09 through to March 2010, so in that sense a recession could be technically over, but at the same time as that economy's growing unemployment will be going up and business confidence will take quite some time to get on its feet, so I think we've got a pretty flat year ahead of us despite the forecasters saying it'll pick up a bit.

RAWDON Do you think unemployment could go a lot higher than at this stage I mean we're talking about 7%, but could we potentially go back to sort of early 90s levels?

BILL Oh look I would hope not, I think the labour market is in much better shape than it was in the early 90s, businesses now understand that even if – because skills have been so tight that even if there is a period of unemployment if they can at all hold on to people they will, so look the forecasts are saying 5½ - 6% it's too high, it simply underlines the urgency of getting on with supporting business confidence to invest because it's making profits and making investments that make jobs.

BRIAN Bill I thought I heard you suggest that there might be a bit of a bubble in dairyland prices were you going that far when you were talking about wealth destruction?

BILL Well I think if you asked the dairy farmer right now whether commodity prices are meeting the expectations they had six months ago or even three months ago the answer to that would be no, you're seeing quite a mood shift in the dairy industry and we need to track that closely because it's been the dairy payout that had protected this country from quite a nasty recession, so looking ahead if you see the commodity prices coming down quite significantly, you’ve got the Fonterra auction system that’s giving pretty clear signals to farmers, you are going to see land prices come back and the payout for this season's not too bad but looking ahead for the next season I'd certainly hope it could be maintained somewhere round where it is now. If the dollar keeps dropping that might be possible, but it's vital of the economy that that industry is in good shape.

NEVIL Bill we've seen reforms carried out usually when the country's in a crisis and it probably is in one at the moment and you’ve got Sir Roger Douglas there fairly close in parliament, will you be looking to him to sort of mark off any major reforms say reform of the state owned enterprises and other government involvement in business?

BILL Well look we don’t regard Sir Roger as the yardstick by which all reforms are measured, I mean he's a guy who achieved a lot in his time, the times are different now, I think where we would agree though is that there is a need for some pretty comprehensive micro economic reform and it might even be the language he would use, and that is in – that’s just efficiency and incentives certainly in the government sector, but also through this whole forest of regulation and messy political disincentive that’s grown up around our business community and around the SOEs, there's quite a big clean up job to do there. Now that was going to be required anyway regardless of the recession because Labour had got off in the wrong direction, but now with the recession there's some real urgency and certainly Sir Roger will be welcome to contribute to that debate.

RAWDON Okay Bill English, Finance Minister designate, thanks very much.