Transcript of Bill English interview on 'The Nation'
Transcript of Bill English Interview on 'The Nation'
Interviewed by RACHEL SMALLEY
Rachel Welcome to The Nation and our Budget special. The man in charge of the country's purse strings eased them just a fraction in this year's budget. It was a mean 900 million dollars' worth of new spending, and that keeps Bill English on track towards an operating surplus of 75 million dollars in 2014/15. So what sweeteners will he offer in election year? Finance Minister, Bill English, joins me in the studio this morning. Hullo Mr English, thank you for coming in this morning. So in this budget we show a fairly optimistic plan here really for growth. How certain are you that you're going to meet these forecasts.
Bill English – Finance
We're more certain than we have been in the last three or four years, and that’s because the global situation still has its risks and challenges but looks a little bit more settled than say a couple of years ago on the one hand. And on the other hand New Zealanders have adapted very well through the recession. Sorted out a lot of issues about their household finances and their businesses, and I just sense a lift in confidence that we are able to handle the situation, and grab the opportunities we have.
Rachel If we look at Budget Day GDP forecasts we can see a graph, I think we can bring that up now, that shows that you’ve essentially had to revise them each year. So in 2011 we forecast 4% growth this year, then last year revised that down to 2.6 and then revised it this year down to 2.5. so these are volatile these forecasts aren't they? Why should we believe these forecasts?
Bill Well they are volatile because the world's been pretty changeable. Treasury does the forecasts, it's their best professional judgement at the time with the information that they have. I think the way the government's characterised it is that is not to chase the figures month to month or even quarter to quarter, but we're on a track of moderate growth, 2 to 3%. By international standards it's pretty good and we're focusing on the longer term structure in the economy to improve it, not just on the shorter term numbers.
Rachel Well you talk about long term but Rob McLeod from Ernst & Young, he said this week, predicting GDP beyond 12 months in today's environment is not much better really than guesswork. Is he right?
Bill Well you know he understands the economics of it pretty well, and our approach to that is to focus on the things we can control. It's not as if because the forecast's a half a percent up everyone puts their feet up, of course they don’t, because both the government, businesses, households, are all working on how to be more competitive, how to lift our incomes, and create more jobs in a pretty challenging world.
Rachel Nonetheless it's on these forecasts that we have really this knife edged surplus of – it's pretty tiny – 75 million dollars. That surplus does rely on these forecasts being right though doesn’t it?
Bill Well it does roughly. I mean the government has – as we've got closer to getting to surplus we're a bit more confident each year that the patterns that are getting us out of deficit are embedded in that, is tax revenue reasonably solid and a bit better than expected, and good control of expenditure. We need to keep the 75 million in context. Three years ago the deficit was 18 billion, this next financial year it'll be 2 billion. So we've made major progress and we're pretty confident in getting to surplus.
Rachel What do you do in the next budget if this week's forecast figures prove too optimistic, as we've just seen in Australia.
Bill Well we've got a bit of room to move. I think the difference between us and Australia is that we haven't had a big burst of tax revenue which they got through the mining expansion, some of which got built into spending. I mean we're coming out of a background of recession rather than rapid growth. So we're pretty confident that the forecasts are conservative enough and we can get to that surplus.
Rachel You're pretty confident you'll get to that surplus, even though it's pretty small and it's on a knife edge?
Bill Well a government's always got choices, you know and over the last few years along with the rest of New Zealand made conservative careful choices that have enabled us to continue to invest in growing the future capacity of the economy, at the same time as getting our books back to surplus and some of the international agencies like the IMF have endorsed that strategy.
Rachel Okay the IMF have also said this week, they’ve been a little bit in your ear, they said 'the causes of low household savings will need to be addressed to reduce pressure on the exchange rates and to lower current account deficits'. They want you to act on this issue, but you haven't done anything have you?
Bill Well that’s not correct, I mean through our budgets over the last few years we have taken a number of angles on the savings issue, reform on that, pretty significant reform on that of our tax system, we've cut the tax on savings. More recently the government share offers which give savers better opportunities for investment. I think there's quite a lot of work to do now to understand just why New Zealanders behave the way they do. We've been inclined in the last 20 years just to say most people have got it wrong, they're not saving enough, and I've been discussing with Treasury and the Reserve Bank we need to dig down further into that, because New Zealanders won’t all be wrong. Now they’ve got good reasons for making the decisions they make and we need to understand that better before we take another significant step in encouraging savings.
Rachel What could you do to incentivise people to save?
Bill Well look there's quite a lot of incentives there, Kiwi Saver's got incentive to build, and it's been a successful scheme. I think we should give it – you know New Zealand should give itself a bit of credit, including the last government for setting up that Kiwi Saver scheme. It's got 2 million New Zealanders in there, a lot of whom would not be saving. We're providing opportunities for investment on a large scale through the share floats. You know these things take a long time to shift and I think we're creating a more positive environment for New Zealand savers. Action on the housing market to deal with runaway prices there I think is also an important part of the equation.
Rachel Okay, let's look at the Budget itself. No sooner had you announced it this week than Standard & Poor put eight banks on notice, and they said, again coming back to this current account deficit issue 'we consider there's an increasing risk that a sharp correction in property prices could occur' and they say that risk is heightened by this. You do have to do something, you do need policy though don’t you to make people save.
Bill Well Standard & Poor's are two things. One is an endorsed government's fiscal approach as the IMF did to getting back to surplus, and secondly that putting those banks on negative watch is a warning about the state of our housing market. We are unusually highly valued by world standards, and prices have been going up quite rapidly by world standards. We agree with that risk and that is why today as we speak, parliament is debating legislation we introduced with the Budget to provide for housing accords, and to provide the tools for councils and government to increase the supply of housing into the market. Because when you look around the world you see countries like Spain, Ireland, the US where when the bubble bursts you get some real economic destruction.
Rachel Is there anything more that the Reserve Bank can do?
Bill Well in the Budget we had a packet of measures focused on housing, the legislation I just talked about. But alongside that we signed up for the first time to the socalled macro prudential tools which are ways of the Reserve Bank ensuring that banks remain safe, and that banks don’t over extend themselves on lending. And together it is a pretty significant shift in the environment for our housing market, and I think significant enough to have some impact over the next two or three years.
Rachel Okay, your critics say there's nothing structural in this, nothing significant in this budget that will trigger any real change. So the best you can do is it to guarantee you know future surpluses is to freeze government spending?
Bill Well I think that kind of criticism just doesn’t quite understand how the economy is evolving. There isn't one big thing that makes a fundamental change in the economy. The only time that happens is when you have a crisis. So this budget is part of a considered programme focused on increasing jobs and incomes. There are certainly structural measures in it, the ones we've just talked about are housing, are the most comprehensive biggest structural measures around the housing market for a long long time, and will have the potential to make a lasting difference to how our housing market operates, and that housing is our biggest single asset. So that’s certainly structural.
Rachel Okay, where are the jobs going to come from here? Where are the jobs in this budget, where's the job creation?
Bill Well the job creation comes from the businesses and when you get to talk to business people today I think they will underline that. So we're creating the conditions that enable them to make the decisions to invest and employ. When you look at the forecast for jobs, and they're just forecasts, they're not promises or guarantees, they're going to come from a continuing growth in our export sector, which has been growing for the last two or three years despite all the head winds, and from the nationwide effect of the Christchurch rebuild, and a pickup in domestic construction in Auckland.
Rachel There's also though forecast wage growth of 4.7% by 2015. Is that problematic?
Bill: Look we've had the benefit and households in New Zealand have actually come through this recession in pretty good shape, a lot of it because of their resilience, and a lot of it because there's been a pretty steady approach to the economic management. So New Zealanders have got the lowest interest rates in 50 years, their dollar can buy more than it has for a long time, and most of them have had moderate and I'd stress moderate wage increases each year, and that’s what we're expecting to continue over the next four or five years.
Rachel You're also cutting ACC levies, what impact is that going to have on the average Kiwi wage?
Bill Well the details of that will become clear later in the year, but it's a good example where just one part of the public sector's being managed much better now, and we can pass you know 20, 30% reductions back to people, add it to previous ones it will be 40% reductions in ACC levies, and that will affect every pay packet, because every pay packet has an ACC levy on it. Details later in the year.
Rachel So, okay we've had no radical changes in this Budget, nothing major, most of the critics would say what are you gonna have up your sleeve for next year – election year you need to gonna have a little sweetener in here, what have you got planned?
Bill I wouldn’t expect – people shouldn’t expect significant shift form this government in an election year budget. The last election year budget was one of the tightest budgets in a long long time, a zero budget. We will continue with a pretty similar programme and that is to move along through the economy as we've done with housing and ACC this time, with further reform that is going to improve our competitiveness and invest in our future capacity for growth. That’s been a longer term view, and we'll also continue with reaching surplus and improving our public services, and we've built up a track record in that now, people should expect it to continue next year.
Rachel Okay Minister of Finance, Bill English, appreciate your time this morning. Thank you.