Q+A: Shane Taurima interviews Finance Minister, Bill English
Points of interest from this weeks
Shane Taurima interviews Finance Minister, Bill English
Finance Minister, Bill English, gives absolute commitment of surplus in 2014/15: “10 out of 10 [chance of reaching surplus]… the government’s determined to get to surplus.”
Another zero budget unlikely, as English says “it’s not that easy to achieve.”
Minister hints at government plans to shut down old, “inhumane” prisons: “there are likely to be the closures of some prisons.”
Partial asset sales: English promises “widespread ownership by a large number of small investors”, not just KiwiSaver funds, and “a large pool [of shares] for New Zealanders to go and buy…”
Mum and Dad investors will be able to ring the government “directly” on the day the shares float to buy shares.
Section 9: Government will pay 100% of Treaty claims for the assets of mixed ownership assets, even though it only owns 51% of the company.
“It’s not [taxpayers] picking up the bill for private investors; it’s just the government meeting its obligations under the Treaty.”
“No signs of some runaway bubble” in Auckland housing, despite rising number of 90 percent-plus mortgages.
“Some sign of growth and lending from banks is actually positive for the economy and positive for the Auckland housing market.”
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Q+A: SHANE TAURIMA INTERVIEWS BILL ENGLISH
Deputy Prime Minister, good morning and thank you for joining us this morning.
BILL ENGLISH - Finance Minister
Good morning, Shane.
SHANE The Prime Minister said this week that you’re still on track to get the government books back to surplus in the 2014/15 year. What’s the chance out of 10 of still achieving that?
BILL Well, that’s what we’re working on. It’s certainly going to be a challenge. You’ve got the uncertainties of the earthquake, uh, you’ve had a bit of softness in the economy. The government’s got a pretty strong expenditure control programme in place, so we’re determined to get to that surplus. And along the way we’ll continue to maintain entitlements. On the first of April, National Super will go up, benefits will go up, Working For Families will go up.
SHANE Out of 10, though, minister, the chances of reaching that surplus?
BILL Oh, well, 10 out of 10. Nine out of 10. 10 out of 10.
SHANE Pretty convincing. Projections now only have you just squeaking into surplus. What happens, as you’ve alluded to, if the financial climate changes?
BILL Well, look, anything could happen, and as I’ve said before, if there are some extreme events globally, then you’d probably have to rethink it. There don’t appear to be signs at the moment of those extreme events. We’ve got our own uncertainties, particularly around the earthquake, because the numbers there just keep moving around But the government’s determined to get to surplus.
SHANE Because what I’m trying to get clear is just how important this surplus is to you. If your income, for example, keeps falling, do you just keep cutting until you reach surplus?
BILL Well, we’re not in that situation. How we’re dealing with this is to put in place quite a predictable track for government spending. The government services have known for a couple of years now that they weren’t going to get any extra money. Health and education, they’ll get some extra money. We’re also looking at the long-term drivers of our costs, such as welfare dependency, our pretty expensive law and order system. So we’re focusing on the longer term as well as getting savings in the next year or two.
SHANE But the chance is nine out of 10, 10 out of 10. It seems very important to you, so do you just keep cutting to be able to reach that target? That’s my question.
BILL Well, those kind of slogans actually aren’t useful. This is about controlling our long-term cost drivers, like welfare dependency, uh, making sure we’ve got a competitive economy so that tax revenue is growing, keep a tight rein on public expenditure. It’s just like a household or a business trying to get rid of their overdraft. The reason it’s important is because our government debt has been rising rapidly through the recession. It started at $8 billion net debt in 2008. It’s currently around 50. It won’t stop rising till it gets to over 70, and we need to stop that debt rising
SHANE Wouldn’t another zero Budget help? Wouldn’t it help? Because you mentioned before new money for health and education in this year’s Budget. Wouldn’t another zero Budget help you out?
BILL Well, yes, it certainly would. The question is how you achieve a zero Budget, and what we’ve been trying to do is get the right balance between maintaining entitlements, continuing to ensure New Zealanders have the public services that they need. At the same time as doing that more efficiently, getting some assistance from the government share offer that’s going to be coming through over the next 18 months
SHANE Sorry, if it will help, why not have another zero Budget?
BILL Well, because it’s not that easy to achieve a zero Budget at the same time as the objectives I’ve just talked about. We will certainly be running a tight rein on government expenditure. At the same time, protecting the most vulnerable and ensuring public services can be maintained.
SHANE $900 million on a new prison. Is that money well spent?
BILL Well, that’s the cost over 20 or 25 years. What we’re doing-
SHANE But is it money well spent?
BILL Well, look, we’d be better not having to lock more people up, but the fact is there are bad people out there who should be locked up. There are also very old prisons that we can’t continue to use because they’re not effective and they’re, in some cases, inhumane. So it’s an expenditure we have to have. The good news is that where we were told a couple of years ago we’d need two or three new prisons, there’s going to be one, and that’ll be it.
SHANE We’re told you’re going to close down two prisons to build a new one.
BILL Well, there’s a number of prisons that should be closed because they’re so old and they don’t work to help with dealing with recidivism and just humane treatment of prisoners.
SHANE But can you confirm to us this morning that there will be two prisons closed down?
BILL Uh, no, I can’t confirm that. There’s work going on now. What I can say is there are likely to be the closures of some prisons.
SHANE What about the cuts to the Department of Corrections? How many cuts is this department facing?
BILL Well, look, it’s not about cuts. And I know you like to keep using the word. It’s about effective services. And the fact is after 10 years of a lot of money going into public services, we have to do the same as every household and business and look at how effective our spending is. In the case of Corrections, three years ago we actually put a lot of extra money in, because the probation service was under pressure. That extra money is staying there, but they have become very focused, partly because of the PPP, actually, the contract. They’ve become very focused on how to reduce reoffending and how to do their job more efficiently, like most of the rest of the government services. So they’re headed in the right direction.
SHANE And I suppose that begs the question - what about these front line staff that you’re talking about? How many-? You don’t like the word ‘cuts’, but how many job losses are we expecting there?
BILL Well, look, I mean, across the public service, as we’ve signalled this week, of course there will be some redundancies. The public services grew very rapidly through the first decade of this century, and we’ve been stabilising that and pulling it back, and that has focused largely on back-office staff. Actually, front line staff in Corrections have increased. There are more doctors, there are more teachers, there are more nurses. There are likely to be less back-office staff.
SHANE In May 2011- I want to move on. In May 2011, the government was borrowing $385 million per week. That’s now down to $110 million per week The projection for next year is closer to $20 million per week. The cost of the government borrowing money is at historic lows. So here’s the question - isn’t it a good time to borrow more money to invest in a big project or whatever may boost the economy?
BILL Well, we’re investing in big projects - actually using some of those borrowings that you’re referring to-
SHANE But borrowing more money - that’s the question. Would you consider borrowing more money?
BILL We don’t want to borrow any more than is currently planned, and the current plans still require billions of extra borrowing over the next two or three years until we get to that surplus. We’re in a world that is increasingly hostile to debt. We already have high levels of debt as a country when you add the government and the households together. We don’t want to be in a zone where any lender starts worrying about New Zealand’s debt levels. That is why we must stop it rising, and we will.
SHANE We have a housing crisis in Auckland, minister. Why not borrow more money? If we carry on with this theme, why not borrow more money to invest in a massive building programme, for example, in Auckland to help drive down those prices?
BILL Well, we’re putting a lot of money into Auckland and into the roading infrastructure. With respect to housing, I mean, some of this is going to be a catch up from a period of years where there wasn’t much new housing construction started. That is starting to pick up. With respect to the government’s contribution, we have a very large stock of houses through Housing Corp in Auckland. Roughly a third of them are the wrong size, in the wrong place and in poor condition, and we’re going through a very large-scale exercise to correct that so that we can actually help more people who have housing problems.
SHANE But is that on your radar? Is that part of your thinking at the moment - to borrow more money to invest into, as I say, a big, massive building project here in Auckland to help address that crisis?
BILL Uh, no, we’re not. What we are doing there is talking with the council about their plans. We want to make sure that under the council’s plans, they take notice of housing affordability, that they make rules that are going to enable more and lower-cost housing; not less and more-expensive housing that would have to be subsidised by the tax payer.
SHANE The numbers this year show that first-home buyers are getting back into the market in big numbers. They’re cashing in their KiwiSaver, taking 90% or plus mortgages and spending more than they can afford. Isn’t this your worst nightmare?
BILL No, it isn’t. Look, there’s some pressure in the Auckland housing market, but there are no signs of some runaway bubble. And bear in mind here that neither the banks in New Zealand nor the people who lend to our banks are going to finance some housing bubble right now. So even if there’s a few prices spiking up at the moment, credit growth - the amount of money actually leant for new mortgages - credit growth is actually around zero, and that’s-
SHANE Let’s talk about the banks, because we have figures on that too. These banks are giving 90% or more mortgages. ASB mortgages with an LVR over 90% had jumped by a massive, massive $406 million in the three months till December. Westpac - they’ve increased by a total of $143 million in the same period. Is that responsible lending?
BILL Well, look, we can’t have it both ways here. If there’s a shortage of housing in Auckland, then you’re going to have a bit more lending in order to enable the construction of more houses to alleviate the shortage. So, yes, we would expect a bit more money going into the housing sector. That is how you get more houses that respond to the demand that’s there.
SHANE So are you saying to banks, ‘Lend more. Lend more. These 90% or more mortgages - lend more’?
BILL No, what we’re saying to banks is they have to comply with the now stricter requirements on their capital arrangements, which will prevent them from financing a runaway housing bubble. But some sign of growth and lending from banks is actually positive for the economy and positive for the Auckland housing market.
SHANE What advice do you have for the young couple watching this morning wanting to buy their first home? What do you say to them?
BILL Well, the first thing is they need a competitive economy where the prospects for income increases are good, and New Zealand compared to most countries is doing a reasonably good job of that. We’ve got moderately good prospects ahead of us. Secondly, I’d say look around the country at the housing market, because there are plenty of opportunities around New Zealand for first-home owners to get in. It’s harder in Auckland.
SHANE Obviously save for a deposit. What’s your advice around that?
BILL Well, look, they don’t need my advice because the figures tell us they are saving. New Zealanders have turned around their savings behaviour in the last two or three years, and it looks like they will continue to save more. Younger New Zealanders are doing that. Older New Zealanders are paying off their debt, and that’s a good thing too.
SHANE Let’s move on to state assets. Do you think-? Do you believe you have a mandate?
BILL Yes, we certainly do, and we’re getting on with the process. Look, there’s been some criticism about it, but we need to get in $5 billion to $7 billion to help us pay for the new public assets that we need, like our schools and our broadband, without going and borrowing more money.
SHANE So is that your mandate? To make ends meet, if you like?
BILL Well, look, the government announced its policy 12 months ago. We had a whole election campaign focused on it. We got voted in as the government. We’ve been absolutely clear. There’s no debate about the mandate.
SHANE But even if the 47% that voted for National at the last election all agreed with your policy, it’s still not a clear majority, is it?
BILL Look, you can’t get a better mandate than an election campaign on an issue where you get elected. I think what we’re finding now is people are more and more interested in what the offer of shares is actually going to look like, they want to know more about the companies, they want to know how they’re going to be able to participate, and that includes people who haven’t always agreed with the policy but still want the opportunity.
SHANE Let’s talk about those investors and namely and Mum and Dad investors, because isn’t it right - you simply arrange for big funds to basically pre-order shares. Is that right?
BILL Uh, no, and, look, this is broader than Mums and Dads - a whole lot of New Zealanders who aren’t necessarily Mums and Dads-
SHANE Bigger than Mums and Dads?
BILL Yes, look, it is- As we’ve said-
SHANE The Mums and Dads that gave you the mandate that you say that you have to put this through?
BILL That’s right, and we’ve said we want 85% to 90% of these companies in New Zealand ownership. That will mean widespread ownership by a large number of small investors. And even for those who can’t participate, they will be indirectly participating because their KiwiSaver will be buying- the KiwiSaver fund will be buying shares. ACC, to whom they pay levies, will be buying shares. Uh, the New Zealand Super Fund, to whom they contribute tax, will be buying shares as well. So all New Zealanders, one way or another, will be participating.
SHANE Just clarify it for us, please. Will Mum and Dad be able to ring up a broker on the morning of the share float and buy a bunch of shares?
BILL Uh, yes. In fact, they probably won’t have to ring a broker. They’ll just be able to register directly themselves and the government will deal directly with them.
SHANE What percent will be in to them and not the funds?
BILL Well, as we’ve said, we want 85% to 90%. We’ve yet to make the decisions about exactly what the different size, the different pools will be, but there will be a large pool for New Zealanders to go and buy shares if they want to buy them.
SHANE Telstra in Australia, for example, was sold off, and there’s a capping law on how much of it non-Australians can own. So why not do the same here?
BILL Well, we’ve set out the government’s target, which is 85% to 90% New Zealander ownership, so that’s the 51% that is the government share that’s going to be retained, uh, and then of the rest we want to see New Zealanders - both individuals and institutions - get the significant majority of those shares, and we’ve made the quite clear.
SHANE Because the mixed-ownership sales, Crafar farms - it seems like anyone’s money is as good as anybody’s else’s, no matter which country you come from.
BILL Well, I think you’re generalising a bit here. The Crafar farms dealt-
SHANE Do you not agree with that?
BILL Uh, no, I don’t, because the government has made its policy objective clear, and people will be able to see very clearly whether it’s been achieved. We want majority 85% to 90% New Zealander ownership of these assets.
SHANE Just very quickly. The Treaty clause section 9. If the Treaty clause applied only to the government, who pays if a Treaty claim needs to be dealt with? And I’ll give you a quick example. If there’s a claim against a dam owned by Mighty River Power and the iwi is to be paid $50 million. Under section 9, who pays? The government?
BILL Yes, the government pays, because it is the government who has the obligations under the Treaty.
SHANE So the government, the tax payer, picks up the bill for private investors?
BILL Well, it’s not picking up the bill for private investor; it’s just the government meeting its obligations under the Treaty. And these kinds of things go on all the time. When there’s claimants who claim public land or who have claims to compensation for land that was taken that’s currently owned by householders and farmers, the government picks up the tab.
SHANE So that means that taxpayers pick up 49% of the bill for investors, private investors?
BILL No The private investors never had an obligation, and they never will have an obligation. It’s only ever been the Crown’s obligation. Whether iwi are claiming farms or property of whatever was taken from them 100 years ago, only the Crown has obligation to meet the claim, and that’s how it will be.
SHANE And let’s leave it there. Deputy Prime Minister, Finance Minister, Bill English, thank you for your time this morning.
BILL Thank you, Shane.