ACC Levies May Drop by More Than First Thought: English
Sunday 20 October, 2013
ACC Levies May Drop
by More Than First Thought: English
The
Government is planning to reduce ACC levies by as much as
two billion dollars over the next two-three years, Finance
Minister Bill English said today.
Speaking to Corin
Dann on TV ONE’s Q+A, Mr English said that ACC has “by
combination of things, including just doing a better job of
rehabilitating people sooner” given the Government the
opportunity to reduce levies substantially – “the
equivalent of a four cent cut in the company tax
rate.”
Mr English also told Corin that in the
same two-three year time-frame, New Zealanders can look
forward to higher pay increases.
“The good news
for the punter is that business confidence is at the highest
it’s been at for many years. That indicates that in
their workplaces, there’s growing confidence that they can
sell more, that profits are going to be up, that pay rises
are coming.
“There
are some things that will force them to do it. One is just
their need to get hold of skilled people. We’ve already
got skill shortages in some areas. As employment— As new
jobs grow, you’re going to see more of that,” Mr English
says.
Auto-Enrolment in Kiwisaver to
Return: English
If and when the Government
returns to surplus, auto-enrolment in KiwiSaver will be
re-introduced, says Finance Minister Bill
English.
Mr English told Corin Dann that the
Government was still committed to auto-enrolment, which
would mean everyone not currently enrolled in KiwiSaver
would be automatically signed up, with the option to
opt-out.
But paying down debt would be the first
priority, said Mr English.
“We’re still
borrowing at $110 million a week, and before the next
recession turns up, we want the government balance sheet to
be back in a good position, that it can run up debt again if
it has to or if we have another
earthquake.”
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CORIN
Minister English, thank you very much for joining
us. Well, listen, you were pretty negative when you came
back from that visit. Are you just trying to frame the
debate here so that Labour can’t go into next year’s
election making big spending promises?
BILL
ENGLISH – Minister of Finance
No, we’re just
trying to be realistic. The fact is that the developed
world economies – US, UK, China and two or three years
away, Japan – all have to work out how to get off the drug
of printing money. And speaking to a wide range of people
very closely involved with it, ranging from Ben Bernanke
right through to people working in the US Congress, no one
quite knows what that’s going to be like. The answer
for us is to be as resilient as possible, that whatever
waves they generate, that when they wash up here, we can
handle them, and, actually, we’re in pretty good shape for
that.
CORIN Well,
I’ll pick you up on that, because an economist this week
said we’re pretty much the ‘rock star’ economy of the
developed world; we’re heading for three, some economists
are even predicting four per cent growth, so why so
negative? Why can’t we have a bit of a lolly
scramble?
BILL
Well, look, it’s not negative about us. I think
New Zealanders have done a fantastic job of getting through
this recession, reorganising the way they do things and
getting on to the point where we’re in the top half dozen
of developed economies for creating jobs and more incomes.
But I think we just need to be aware that when we’ve had
such unprecedented circumstances with the Federal Reserve
and US printing money still at the rate of $80 billion a
month, these are extraordinary circumstances. Interest
rates around most of the world are between nought and one
per cent, and that’s actually unprecedented.
CORIN Yeah,
but, Minister, people have had that for five years now.
They’re a bit sick of that. They’ve got 1.7 per cent
pay increases on average. They’re not getting any
benefits. They want to see some gains. Can you guarantee
people on the ground that they’re going to start seeing
decent increases in their pay
packets?
BILL
Well, look, on average,
they’ve been getting pay increases ahead of inflation, and
we want to see—
CORIN
Yeah, but inflation’s virtually been zilch –
nothing.
BILL
That’s right, and so the pay increases have been
moderate, and I think a lot of New Zealanders are now
starting to see the confidence in the businesses and
organisations they work for that indicate they can look
forward to some higher pay increases over the next two or
three years. Look, the reason I’m drawing attention to
these international circumstances is because they’re real,
because the implications of the global financial crisis go
for decades, not for a few years, and we’re just
signalling that the Government’s going to be a bit
cautious. The good news for the punter is that business
confidence is at the highest it’s been at for many
years. That indicates that in their workplaces, there’s
growing confidence that they can sell more, that profits are
going to be up, that pay rises are coming.
CORIN But
what guarantee is there that those firms are going to pass
on those benefits that they’re getting from the increased
demand? There’s nothing to force them to do
that.
BILL
Well, actually, there are some things that will
force them to do it. One is just their need to get hold of
skilled people. We’ve already got skill shortages in
some areas. As employment— As new jobs grow, you’re
going to see more of that.
CORIN How
long will that take? How long will that
take?
BILL
Well, it’s happening
now. I mean, you go to the construction industry, for
instance. You can see the pressure around skills. Just
look at the ads on Seek or on Trade Me and pretty clear
commentary from the personnel companies about skill
shortages. That’s a good thing for the wage
earner.
CORIN
So what do you expect the unemployment rate to be,
say, come the next election?
BILL
Well, look, it’ll be
dropping, and we’re just doing some forecasts now, which
will be announced just before Christmas, and that will show
a continuing record of the unemployment rate gradually
dropping—
CORIN
But are we talking about around five per
cent?
BILL
I don’t think it’ll reach five per cent by the
election, but it’ll be headed in that direction.
Unemployment hasn’t dropped as fast as we would have
liked, that’s for sure, and we’re doing a lot of work to
support and help people on the edge of the labour market to
get into it with some more flexible labour market policy,
like the 90-day trial period and more active welfare
policy.
CORIN
Sure. Isn’t the problem you’ve got, though,
just as the economy is going to start coming right, when you
should start to see some wage increases finally coming
through, albeit it, I would argue, probably slowly, people
are going to get whacked by rising interest rate hikes,
aren’t they? They’re going to be getting money sucked
out of their wallets because of higher interest rates.
BILL
Well, bear in mind here
that New Zealand’s got the lowest interest rates in 50
years. Our interest rates are affected by world interest
rates. World interest rates have never been between zero
and one before in history, so we’re in a very unusual
situation. Interest rates are bound to normalise, that is,
get back to the kind of long-run levels that have been there
for 30, 40 or 50 years, and so what we’re focusing on is
policy that will keep interest rates lower for longer.
But, look, I think most people have read the signals. The
Reserve Bank, who set our cash rate, have been signalling
for a year or so that interest rates are going to rise, and
I think most people have probably built that into their
calculations.
CORIN
You don’t think this is a big political problem
for you, that you are going to effectively be blamed for
rising interest rates that could, in fact, happen? We
could see hikes in the middle of election campaign.
BILL
Look, it’s not a matter of who’s getting
blamed. It’s a matter of the reality and whether
you’ve got an economy that’s resilient enough to adjust
to it. I think it would be fair to say people have had
pretty clear signals that, for instance, households getting
themselves into very high levels of debt are going to come
under pressure as interest rates begin to rise. But, look,
if the Government keeps its spending under control, if we
work hard with the supply side of the housing market, then
there will be less pressure on interest rates.
CORIN The
other problem you’ve got, though, as interest rates go up,
you’ve got a dollar at 85 cents US, as it is today. I
mean, where is that going to go? You could be looking at
parity.
BILL
Well, there’s been the odd mention of that.
That’s to a large extent dependent on the health of the US
economy.
CORIN
Do you think it could get to parity, though? I
mean, where’s it going from
here?
BILL
No, no. I don’t
think it’ll get to parity. I think the US economy is in
reasonable shape. We keep …eventually, it is … the
growth is coming in the US economy. Their interest rates
will start rising, and when that happens, it will rerate our
dollar. But you’re right, that’s one of the small
percentage threats. There’s a small chance that the US
economy doesn’t pick up and we end up with a higher dollar
than we have.
CORIN
Well, it might not feel like a small percentage
threat to the likes of those saw millers in Rotorua
yesterday who found out they may be losing their job. I
mean, again, an industry which is suffering because of a
high dollar.
BILL
Well, there’s
contradictory forces in that industry, with record log
prices as well, and that’s hard on our local processes.
And that uncertainty is very tough for the workers at that
Rotorua
sawmill.
CORIN So why not
step in and help them out like you have Solid Energy, say,
the workers at Tiwai? Why not help the region of
Rotorua?
BILL
Oh, simply because we only step in in extraordinary
circumstances, such as the smelter, with the size of it, the
impact on the electricity market. There are a very large
number of jobs involved there. So in that case, they’ve
clearly tried pretty hard to keep the thing going, they
haven’t been able to succeed, and our job is to ensure
there’s other opportunities for the workers who can’t
stay in that
sawmill.
CORIN
Well, it seems a little bit unfair that you’re
stepping in to help out big business, but an industry such
sawmilling, which has been doing it tough because of the
dollar, gets nothing.
BILL No, I
don’t think it’s unfair. Look, it’s a pragmatic way
of making decisions. We could say, ‘Hands off. We
don’t help anybody.’ We’ve made the odd exception
here and there in quite extraordinary circumstances. In
this case, the best thing for that sawmill is not a
government subsidy; it’s the opportunity for those people
to get a job in another industry that’s growing. The
good news is our primary production industries are
growing. They’ve got near record-high prices for their
products that are selling overseas, business confidence is
as high as it’s been for quite some time, and the
opportunity for those workers will be better than it has
been at any time in the last six or seven
years.
CORIN
You’re saying that those workers who might lose
their jobs at that sawmill – they’re going to get
jobs?
BILL
Yeah, I think it’s pretty likely they will get
jobs, because—
CORIN What
in?
BILL
Well, you know, I can’t be specific, because
I’m not in Rotorua looking at the individual businesses
that are growing or in the surrounding central North Island
area, but there are certainly going to be jobs, for
instance, in the construction industries in Auckland and
Christchurch. That feeds through into industry across the
country.
CORIN
So they’re going to have to move to Auckland and
Christchurch, which is exactly the argument Labour has been
throwing at you this week, that all the regions – people
are having to move to those
cities.
BILL
Well, they’re simply
wrong. All the regions grew in the last census, except for
Gisborne.
CORIN
But you just said those workers are going to have
to go to Auckland or Christchurch for the construction
thing.
BILL
I didn’t say that. No, you said that, Corin.
What I said was there’s lots of jobs in Auckland and
Christchurch in construction; that feeds into businesses
right across the country. The fact is the economy is going
to be growing at three per cent, that creates job
opportunities, and what we’ve found— Oh, look, I had a
shutdown in my electorate. The Mataura Freezing Works lost
400 jobs. In the last census, our population still grew.
Unemployment is under four per cent. Those people are
capable, resilient workers, and they will find
jobs.
CORIN
All right, if we can move on to the issue of
retirement savings, which has come back on the agenda with
the Retirement Commission and the Financial Services group
has also ploughed into this. Would you consider offering
any tax break on savings to try and get the people, I guess,
more into KiwiSaver and them saving
more?
BILL
Well, look, the industry’s put forward that
proposition. One of the— and what they’re suggesting
– a swap between the current government subsidy of $520 a
year for a lower tax rate on the income of the KiwiSaver
fund. Now, the question they have to answer is why is that
fair when the current subsidy actually directs the
government support mainly to lower— well, proportionally
to lower-income savers, whereas their tax break delivers the
benefit to high-income
savers.
CORIN
But isn’t the
argument—?
BILL
And they need to answer
that question.
CORIN
Isn’t their argument that it will move some of
that bias away from rental property, which it continues to
be a problem. We’ve got the BNZ just the other day
saying that you’ve got rental investors coming back in to
pick up the slack from first home buyers. Isn’t that
going to help?
BILL
Well, it potentially
could do that, but they still have to deal with the fairness
issue, because otherwise it would be the Government
redirecting its subsidy from lower-income savers to
higher-income savers, and you’d need a pretty good reason
to do that.
CORIN Are you
still committed to bringing back auto-enrolment for
KiwiSaver if you return to surplus?
BILL
Yes, that remains our
policy. That would be one of the choices if and when we
get to surplus to auto— The way that would work is
everyone who’s not in KiwiSaver would be automatically
enrolled, but they would retain the option of opting out,
because quite a lot of people do opt
out.
CORIN
Where does that sit in the list of—? You talk
about choices, so where does that sit in the list of choices
once you hit that surplus?
BILL Well,
our top priority would be to focus on repaying debt, because
our government debt’s run up from 10 billion to a peak of
around 70 billion in a couple of years’ time. We’re
still borrowing at $110 million a week, and before the next
recession turns up, we want the government balance sheet to
be back in a good position, that it can run up debt again if
it has to or if we have another earthquake. So that’s
the top priority, and then there are other choices, and
isn’t it good that we’re a country that’s got some
choices?
CORIN
Yeah, one of those choices you’ve talked about
was ACC levies. You’re looking at potentially cutting a
billion dollars’ worth in levies next year. Could that
blow out to one and half billion, given what you’ve
got?
BILL
Well, that’s possible. I mean, ACC has by
combination of things, including just doing a better job of
rehabilitating people sooner, gives us the opportunity to
reduce ACC levies quite a bit. Just to give you a sense of
the scale of that, over two or three years, we’re planning
to reduce those levies by about two billion. That’s the
equivalent of a four cent cut in the company tax
rate.
CORIN Sure.
Finance Minister Bill English, thank you very much for your
time this morning on Q+A.
BILL
Thank
you.
ENDS