The Nation: Minister of Finance Grant Robertson
On Newshub Nation: Simon Shepherd interviews Minister of Finance Grant Robertson
• Finance Minister Grant Robertson says he is not concerned about the foundations of the economy. “I think the economic fundamentals for New Zealand are good. The books are in surplus; we’ve got debt at a relatively low level; unemployment’s around 4.5 per cent and tracking downwards”.
• He says the potential trade war means New Zealand must have a financial buffer and diversify its export markets. “It’s why the EU free trade deal matters, it’s why finishing the Pacific Alliance deal matters, and it’s why we’ve got to diversify the exports we are sending overseas.”
• On vertical construction, Mr Robertson says he is not considering regulation of the private construction industry to ensure best practice, but “if we have to revisit some of the changes made by the previous government to the Construction Contracts Act we will, and we’re taking another look at those now.”
• On his suggestion that Kiwisaver funds be invested in New Zealand infrastructure: “My view is that if we do a good job of packaging up some of the big infrastructure projects in New Zealand, they’ll be attractive to those fund managers. I want to see is more of New Zealanders’ savings being invested here inside our borders.”
Simon Shepherd: Business confidence continues to fall... the New Zealand dollar has plunged to a two year low against the greenback, manufacturing activity is down for the third month in a row and the reserve bank is sticking with record low interest rates. It looks like our economy's losing its shine, but the Prime Minister and Finance Minister seem convinced there's little to worry about. Simon Shepherd: Finance Minister Grant Robertson joins us now from our Christchurch studio. Good morning, Minister. Thanks for your time.
Grant Robertson: Morning, Simon.
Well, you said to me this morning we can’t transform the economy if we haven’t got the foundations right. So are you worried that the foundations are looking a bit shaky right now?
No, I’m not. I mean, I think the economic fundamentals for New Zealand are good. The books are in surplus; we’ve got debt at a relatively low level; unemployment’s around 4.5 per cent and tracking downwards. And the things that make our economy work well – the fact that our banking system is solid, that, you know, we’ve got a good reputation for ease of doing business – all of those things are still there. And I read in the New Zealand Herald this morning Don Braid saying, you know, New Zealand is still a good place doing business, to invest in, and I back that judgement.
And, yet, you’ve got indicators saying other things like the manufacturing index, which is talking about three months where the activity’s lessened. And, of course, the ANZ’s own activity index has dropped to its lowest level since 2009.
Look, and I’ve never denied the fact that among some in the business community there are issues out there that are concerning them and I share some of those concerns, particularly around global trade tensions and the potential that that has to impact on the New Zealand economy. And we are in that transition that we talked about the last time I was on the show – which is that the economy is being propped up by population growth and an overheated housing market. Both of those things are changing. We have to transition to being more productive, more sustainable, a modern 21st-century economy. There’ll be one or two bumps in the road on the way to that, but we’ve got to plan to do it.
OK, but are you dismissing this, sort of, lack of business confidence as just perception? I mean, even your Associate Finance Minister David Parker said it was the vibe of a self-selected subset of CEOs. Are you taking them seriously?
Oh, look, you know, we take all opinions we get from the business community seriously. And I’ve been travelling around New Zealand speaking to audiences all over the country and hearing from them, both their concerns but also their excitement about what’s possible for them. And, overall, I think business is optimistic about their own future, but there are some issues, and they are, you know, those ones I’ve just mentioned. The thing that tops the issue is access to skilled staff, actually. And that’s something we’re working on. We had an announcement this week around the Mana and Mahi Programme. We’re getting more people into apprenticeships, more opportunities for training. And, yes, there will be one or two government policies that some members of the business community don’t like. But I still continue to believe as a country we’re well positioned. Actually, the trend in decline in GDP growth started at the beginning of 2017. The difference now is that we’ve got a Government that has a plan to turn that around into a more productive set of growth numbers.
But if growth isn’t going to be as good as first forecast by the treasury, and as rosy, are you going to make any changes to any of your policies as a result of that and as a result of business feedback?
Well, look, you know, we’ve got a surplus, Simon. I mean, we’re in a position now where the books are strong and able to handle the things that come at us. That’s one of the reasons why we focused on that and keeping debt relatively low is to give ourselves a buffer. We’ve got business at the table with us working on the issues that are in this government’s programme and the issues that business want us to work on. And, clearly, we’ll be listening to the interests and concerns that they bring to the table on those issues. So we’ve got the programme. We want to work with business and, by and large, the business community has come on board on issues like climate change and even some of those industrial relations issues as well.
Well, let’s talk about that, because there are concerns about industrial relations issues, especially as, like I say, the 90-day rule. I mean, are you going to just push ahead with those or just haul back and not give so much, sort of, uncertainty to the business community?
Well, look, and in terms of the 90-day rule, that’s already been altered in the process up to now, and we have listened to the concerns of both our coalition partner, in that case, and the business community. But the direction of travel is one about getting, you know, fairness into workplace relations. We’ve got working groups set up on fair pay agreements, on the Holidays Act, which the business community are very much part of. We’re at the table with them. We’ll keep talking, and we’ll keep listening, and the outcome will be the result of that.
You mentioned the trade war. That’s a big concern for businesses. How bad could that actually be for New Zealand?
Yeah, look, I think it is important not to overdramatize the current situation. The tit-for-tat tariff exchanges we’re seeing between the US and China are bad. But, at the moment, I wouldn’t say it’s having a huge effect. But as you look ahead, if that escalates and goes into a full blown trade war, there’s no doubt that that’s bad for New Zealand. I mean, we’re an open economy that relies on our exports to be able to give us the standard of living we all want, and if we’ve got a global trade war that potentially leads to countries retrenching. It does lower confidence. It can upset some of the global-supply chains that New Zealand relies on. And so I back what both the Reserve Bank Governor and Treasury have said this week, which is that is a potential risk to us. It’s the very reason why we’ve got to make sure we do two things; firstly, be careful with the finances and keep a buffer there to be able to deal with any impact; but, secondly, diversify our export markets. It’s why the EU free trade deal matters, it’s why finishing the Pacific Alliance deal matters, and it’s why we’ve got to diversify the exports we are sending overseas. That’s part of our plan.
OK, look, you’ve talked a lot about transforming the economy. You’ve mentioned that several times already, and we talked about that in May when you delivered the budget. Nine months in, we’re still a bit light on the detail. You’ve got something like 130 reviews, but business is still waiting for that detail — Carbon Zero detail, areas like tax reform. How long can they wait?
Well, you know, this is the transition period. And actually, again, the business community has been really engaged in the Zero Carbon work to the point that we now have the Climate Leaders Coalition, 60 of New Zealand’s biggest businesses, backing the direction that the government’s going in, making their commitments on emissions reductions and being held accountable for that. They want us to get that policy right, and rather than clicking our fingers and saying, ‘Right, that’s what’s going to happen there,’ we’ve brought them on board there. It’s really important to us that we get the design of our research and development tax credit right. No one would want us to reform the tax system without going through the process we’re going now. The direction of travel there is clear, and we’re working with all of the people who are engaged in the economy to get those settings right so that we can be more productive and more sustainable. This is the transition period. We’ve done some things to support the economy through fiscal stimulus with the Families Package and the KiwiBuild programme. They’ll help grow the economy. And bear in mind the Reserve Bank’s forecast this week is still for three per cent growth over the next three years. A little bit of a dip at the moment, but then picking up through 2019 and 2020. That’s a good, solid growth outlook for New Zealand.
All right. Your employment relation changes — do they fit with this idea of transforming the economy into something innovative and productive? Because some businesses fear that you’re going back to, sort of, an old model.
Yeah, look, I think they do, and I think what we are looking at is some changes that were similar to what was in operation 10 years ago, and the economy was humming along there. I don’t think there’s anything to fear from workers having guaranteed rest and meal breaks. I think that’s actually part of a fair society. But the other part of the industrial relations work we’re doing is around the issues of High Performance High Engagement. These are the programmes that companies like Air New Zealand and KiwiRail and even Fonterra have done, where they actually are working much more cooperatively between workers and management and seeing big productivity gains. And I had business leaders and union leaders in last week at parliament talking about how we can push that out further and support small and medium enterprises. So there’s a lot of elements to the employment relations agenda. Ultimately, it’s about providing balance and fairness and ways of driving higher wages and productivity. I think they’re good things to be working on, and I think the business community being at the table is really important.
And yet we’ve seen things like more strikes. We’ve had the teachers. We’ve had the nurses and IRD staff. That seems to be a step backwards.
Well, I’d say, particularly in terms of those state sector workers, that’s really nine years of frustration of the previous government. The offer we put on the table to the nurses was double what the previous government had offered and significantly higher than offers in previous years. We worked our way through that. We stuck to our guns on how much money we had available, but we addressed the issues the nurses wanted. We’ll do the same and work it through with teachers and other staff. But, you know, we can’t solve nine years of neglect in nine months, but we’re doing our best to set a path forward where we do properly reward people like nurses and teachers who do such an important job for us.
Okay. Let’s talk a couple of specifics. You’ve allocated $42 billion for infrastructure projects over the next five years. Now, given the state of our construction industry, are you confident that you’re going to be able to deliver on that?
Yeah, absolutely. I mean, we need to be careful about the way we talk about the construction industry. If we’re talking about residential construction or horizontal infrastructure, things are going well. The pipeline of projects is there. The companies have built in appropriate risk profiles into their costings. We do have an issue with the vertical construction industry in New Zealand, and that’s been recognised by the industry itself in the last couple of weeks. And we’re sitting down with them, working with them on what we need to do to make sure that the 18% of the vertical construction industry that the government’s responsible for, we get our procurement practices right and make sure we’re not contributing to the problem, and the industry needs to make sure it’s apportioning risk properly. But I’m confident in terms of that big infrastructure spend that we’ve got planned, we have the ability to deliver that in New Zealand.
Let’s talk about the government’s role in that vertical construction industry, in the 18%. Would you give a guarantee that the government won’t lowball all its offers from now on, and that you’re going to actually share the risk and make profitable margins for government— sorry, for that construction industry when it’s a government job?
Yeah, look, Minister Jenny Salesa has been really clear. We want our government departments and agencies abiding by the procurement guidelines that the government has. There has been some suggestion that that hasn’t been happening, and we’ve put the word back out to all of our ministries and agencies that they should be abiding by that. The race to the bottom in the vertical construction industry has been clear for everybody to see, but bear in mind we are only 18 per cent of that market. Local government’s probably 10 per cent. So you’ve got 72 per cent of the work coming out of the private sector. So we’ve all got to share responsibility for making sure that risk falls in the right place. And I think it’s in the interest of taxpayers that we make sure that we don’t have companies going under, because that actually ends up leading to higher costs. So we’re working with the industry on that, but I have a very high expectation of government agencies to have best practice procurement.
So you’re putting a warning out to the government agencies — best practice procurement. Would you actually need to regulate the private part of the industry to make sure that there’s best practice?
Look, no one’s suggesting that at the moment. The industry itself is sitting down and saying, ‘Well, how do we make sure that our members in the vertical construction industry understand where risk lies and do appropriate contracting?’ But we have said that we’ll take another look at the Construction Contracts Act to make sure that it’s fit for purpose, that it’s upholding those high standards. Also, protecting the subcontractors as well. I mean, the sight of subbies not being able to get their tools out of some of the EBIT construction sites is not one that I want to see. And so if we have to revisit some of the changes made by the previous government to the Construction Contracts Act we will, and we’re taking another look at those now.
And would you introduce something like risk sharing on government projects?
Well, that’s exactly what the procurement rules need to be about. I’d rather make sure that we set the rules properly so that everybody knows what the highest standards are. And I think that’ll avoid some of that race to the bottom. I mean, clearly, issues like fixed-price contracting have been a problem for the industry. And everybody needs to agree on where risk lies and being aware of risk. We’ll accept our share of that, as the private contractor needs to as well.
You mention this meeting— this symposium next week. Is this a crisis in the industry? Are these crisis talks?
No, they’re not. The symposium next week — the Building Nations one — has been scheduled for many months, and that’s about the infrastructure industry as a whole. And as I say, the horizontal infrastructure industry — the work that’s done to build the pipes and make sure we have what we need to run our cities — is actually going well, as is residential construction as well. I mean, I know in Auckland, they’ve got the highest number of building consents granted since 2004. There’s 83 cranes across the skyline of Auckland. There’s good activity happening in our industry, but where there are difficulties and problems, obviously, we have to address them.
Is there a risk here, though, that in the vertical construction industry, if you don’t address it quickly, we’re going to have more and more overseas players and no industry here?
Look, you know, we want a domestic-based vertical construction industry, and there are companies who are doing well. But this is a long-run trend — we can go back to Mainzeal, and, obviously, we saw Hawkins as well and the problems Fletchers had. So, you know, when there’s a trend like that, you’ve got to deal with them, but equally, we’ve got to learn the lessons of the companies who have gone well. But, you know, we’ve got an ambitious programme here, and I’m absolutely certain that New Zealand companies and probably some Australian ones will be involved in that, because we need to get the work done.
In a speech this week, talking about that massive infrastructure spend that you’ve got on the books, you said this week you want to see a greater use of KiwiSaver funds as part of the Welcome Home package infrastructure projects. So, I mean, how would that work? You’re asking Kiwis investing into KiwiSaver funds to channel that into infrastructure projects in New Zealand?
Well, the fund managers who look after all of our KiwiSaver funds are obviously there to get a decent rate of return for all of us on our savings. At the moment, the vast bulk of that money is invested offshore, because that’s where those fund managers can get that rate of return. My view is that if we do a good job of packaging up some of the big infrastructure projects in New Zealand, they’ll be attractive to those fund managers. And what I want to see is more of New Zealanders’ savings being invested here inside our borders. You know, that’s what I think New Zealanders themselves would like. And the New Zealand Super Fund, as an example, have put forward a bid to help build two of the new light rail lines. We’re assessing that bid alongside others, but that’s a good example of how New Zealanders can see the money that they’re putting away also helping build the future of their country. I think that’s a great thing.
So there’s a different kind of funding model for this kind of infrastructure. It’s not just about the government borrowing to build this stuff anymore. It’s about dipping into KiwiSaver retirement funds.
What it is is about making sure we make the best of the private sector and other public sector investment that’s out there. We’re coming to the table as government with a significant amount of investment, but when you look at the big urban infrastructure and transport investments around New Zealand, we want to make sure we marshal all of the capital that’s out there. And the thing with KiwiSaver and Super Fund is these funds are New Zealanders’ money. If we can see that money being invested onshore, I think that’s a good thing. But obviously, it’s the rate of return that matters to those funds. And it’s up to us to put together packages that are attractive for that investment.
All right. Just finally, Minister, the first instalment of your transformative budget trilogy was solid, but in your own words, ‘underwhelming’. If the economy doesn’t improve, how are you going to be able to deliver a hit with your Wellbeing Budget next year?
I wouldn’t say it was underwhelming. I’d be very surprised if I’d ever said that. It was foundational, Simon, and it was important for us to lay the foundations, not only, I might say, for economic growth, but actually rebuilding the public services that have been undermined over the last nine years. Health and education and housing — they were the foundations of the first budget. The second budget will be the Wellbeing Budget, and we really want to focus on the things that give long-term intergenerational benefit. And that means investing in things like infrastructure, but also the issues that we know make a big difference — the first 1000 days of a child’s life, mental health and issues such as that. So I’m really confident we’re in a position to do that. The fundamentals of the economy are strong, and the growth rates over the next three years are still projected to be around 3 per cent, which gives us a solid base.
Finance Minister Grant Robertson, thank you for your time this morning.
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