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Q+A: Guyon Espiner interviews Bill English

Sunday 1st November, 2009

Q+A’s Guyon Espiner interviews Finance Minister, Bill English.

Points of interest:
- Government to “encourage” people off the invalids’ benefit; we “will tighten the [welfare] net a bit”
- Policies to send DPB mums out to work and allow beneficiaries to earn more both back on the agenda as recession ends
- Unemployment forecasts now pick a peak next year of 7%, not 8% as previously predicted
- Unemployment figures out this week will be up on 6%, but 200 fewer people are going on the dole each week
- Finance Minister ‘not happy’ with pay rises for NIWA and TVNZ chief executives
- English won’t apologise for housing allowances – “I regret the impression that was created… [but] It wasn’t wrong, I stand by the decisions I made.”
- Government rules out “any form of means-testing” on Superannuation
- 2010 Budget will “create pressure across the public sector”
- Focus in the next 12 months will be infrastructure, cutting red tape and tax reform
- Any tax changes must be fair and “seen to be fair”


The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can be seen on tvnz.co.nz at,
http://tvnz.co.nz/q-and-a-news

BILL ENGLISH interviewed by GUYON ESPINER


GUYON Thank you Bill English for joining us on the programme this morning, we really appreciate that. Can we start by getting an update on the performance of the economy; can you give us the latest projections about how bad unemployment is gonna get?

BILL ENGLISH – Finance Minister
Well there's going to be a round of projections before Christmas. The last forecasts had unemployment peaking around 8% later next year. There are some indications now that that peak could be lower. For instance in the last month the number of people on the dole has actually dropped by about 200 a week. Now that'll go up again as the tertiary year comes to an end.

GUYON But 200 fewer going on to the dole every week at the moment.

BILL Yeah, it's a positive sign, but it will be a rocky road, the numbers will come up as the tertiary year comes to an end.

GUYON So what are you thinking the peak of unemployment will be now percentage wise?

BILL Well the indications are it could peak at around 7% instead of 8% and that’s about 20,000 less, and hopefully a bit earlier next year, but there still will be job losses. Unemployment is currently 6%, there'll be a new number out next week which will be up, and it will continue to rise through into the middle of next year.

GUYON But you're hopeful that by the middle of next year we'll have unemployment peaking at 7% and then gradually coming down?

BILL Yeah we certainly hope so, because the biggest impact of a recession falls on the people who lose their jobs and the government is strongly focused on doing everything it can to create jobs that are going to mean those people can get their jobs back.

GUYON So presumably that means that we're seeing greater economic growth than was forecast, what can you tell us about that?

BILL Well I think that’s yet to be seen, I mean the current forecasts are I think 2% through to the middle of 2010 and then 3% growth after that and 4% the year after that, so there's already reasonably significant economic growth built into the forecast. Trading partners are doing better, but our dollar is higher, so it's a bit of a mixed picture. One thing we do know though is that in the last six months the economy has done a bit better than we expected six months ago, so that’s a good base to start from.

GUYON Can we talk about a couple of policies that were directly related to the recession – the nine day fortnight and the transitional relief package for those made redundant, will they continue to the end of 2010 as was planned?

BILL Yes that’s the plan, they were part of a rolling mall of measures the government took, there isn't one big thing you can do to roll back unemployment.

GUYON Sure, but they won't change, you'll still have those in place at the end of 2010?

BILL Yeah that’s the plan to keep them running through.

GUYON What about that other policy, you were going to send mums on the DPB out to work when their oldest child reached six. You put that on hold because of the recession. Is that back on the cards now the recession is over?

BILL We made a number of undertakings before the election around welfare policy, and that was one of the undertakings along with others, and I'm working through now with Paula Bennett, material to take to the Cabinet to put in place the promises that we made.

GUYON So that means that you are actually going to go ahead with that policy again, that is on the cards again?

BILL Well we're having a good hard look at it, along with a package of other measures, some of which will tighten the net a bit, some of which will give people the incentive to get back into work.

GUYON That’s interesting, so what sort of measures are you talking about there?

BILL Well you just go back to the manifesto, there's a range of undertakings there, for instance one of them is to allow people on longer term benefits to earn a bit more money in part time work before they lost benefit, the idea being to encourage them more into work.

GUYON And also tightening sickness benefit at all, is that in your scope?

BILL Yeah we are looking at that. There is very significant build up over the last ten years or so in the number of people on the invalids' benefit, effectively we have 80,000 people where officially the welfare system has said they won't work again. We think that’s a waste of those people and of their potential, so we want to look at how to encourage more people off those longer term benefits.

GUYON And how will you do that?

BILL Well, we'll see that in detail when we've worked through the policy and Cabinet's had a good look at it.

GUYON So this is quite interesting, it's something we haven't heard before, you are going to Cabinet with the policy to again send young mums who are on the DPB out to work when their child reaches a certain age, and to tighten the eligibility perhaps around sickness benefits or to reduce that in some way?

BILL Well these are policies consistent with the undertakings we made when we were in opposition.

GUYON But they're back on the cards now that things are picking up a bit?

BILL That’s right yeah, we've always felt that we could do a better job of making sure people had more incentive about getting off welfare to make sure it's a bit more difficult to get on those longer term benefits, because once people are on those they're pretty much trapped out of participation in the work force.

GUYON This leads us to a point I was wanting to raise. It is who bears the burden of the recession. When we spoke on this programme back in April we were talking about sacrifice and how there are luxuries that you can't always afford in a recession, but it seems it's the same old story that the ordinary people are copping the flak here, it's ACC levies going up, it's the disabled and those with hearing losses who may have to have fewer entitlements under ACC, it's night school classes getting cancelled, yet Ministers maximise their entitlements, and Chief Executives of public companies have salaries that look like telephone numbers. I mean is it fair who's sharing the burden of this recession?

BILL Well look, I think the government has done a good job of focusing on protecting the most vulnerable. We were portrayed before the election if we became the government that we'd rip into people at the bottom end, that hasn’t happened …

GUYON But you just talked about people on the DPB and sickness benefits, making it tougher for them to take money from the State.

BILL Well I think there's a lot of New Zealanders just expect some kind of reasonable expectations and reciprocal obligations on people ….

GUYON Exactly, and has that been given though? On welfare they expect that, but you’ve talked about restraint in the public sector. Let's look at a couple of salaries, the Chief Executive of Television New Zealand got $110,000 pay rise, taking his salary to $830,000, the NIWA Chief Executive's pay went up a similar amount to $560,000. Are you happy with that when you are preaching restraint in the public sector?

BILL No we're not happy with that, those arrangements all flow over from the environment that applied before we were elected.

GUYON So there was nothing you could do about that?

BILL No, those are all contractual obligations.

GUYON Did you have a word with those boards… I'm sorry to interrupt you, but did you have a word with those boards about that?

BILL Yes I understand the Minister of SOEs has been talking to them about remuneration, because…

GUYON Did they specifically talk about those two instances to those boards?

BILL I'd have to check with them, but we've been discussing remuneration across the board. Early on this year the civil service and the Cabinet Ministers all made an undertaking about having no pay increases.

GUYON Yet they go up?

BILL Well these were arrangements that flowed over from the previous government. I mean across the public service the average pay increase for the last 12 months to June, is actually 5.3%. Now that is a flow-on from how the world was before the global financial crisis. Looking ahead I think everyone's pretty clear that restraint is what it's about.

GUYON It never seems to happen though does it? It never seems to happen, it always seems to be the Chief Executives, the top guy's pay goes up and when we're looking for savings we look at those on the sickness benefit and on the DPB. I mean where is the fairness in that?

BILL Well I don’t agree with you, I think the government has protected the most vulnerable through this recession. We made a number of undertakings about entitlements before the global recession. Despite the recession we have stuck to those, we're out borrowing 250 million a week in order to maintain protection for people on benefits, National Super, low incomes, and I think it's important that we stick to that.

GUYON Okay, I don’t want to spend a lot of time on this because I know you’ve answered a lot of questions about your housing allowances, but one thing that I've never heard you say is that you were wrong, or that you are sorry.

BILL Well look I'm publicly accountable the same as everybody else and I think the public should be reassured that those mechanisms work.

GUYON Was that wrong, and are you sorry?

BILL Well look… I ended up in a position where there was an impression that I wasn’t entitled, and I regret that as the Minister of Finance. But I have made sure that I've been able to stick to the decisions I've made about my family, because keeping my family together is important….

GUYON I don’t want to relitigate that. We know how important your family is. Was it wrong, are you sorry?

BILL It wasn’t wrong, I stand by the decisions I made.

GUYON And you're not sorry?

BILL Well I regret the impression that was created, and I regret any concern that caused, particularly for my family, but also for my colleagues, and that is why I made a decision some time ago not to take the allowance, because whatever the rights and wrongs or technicalities any impression that it wasn’t right is bad, and so I've opted out of the system.

GUYON Alright, can we move to the big picture, Treasury produced a document this week looking out 40 years at how the economy might look like. Basically the message was, we can't do what we've been doing without increasing taxes or cutting services, or massively increasing debt. You seem to have chosen the debt path.

BILL Well in the shorter term that’s correct, and that’s because of the recession. The New Zealand government has been able to borrow the money to fill the gap created by the recession, but looking out ahead we're not quite as negative as Treasury about the aging population. I mean they’ve been saying some of these things for 20 years, but you have to work on all those things. So we're working on lifting economic performance because growth helps give you some choices, restraining spending because there's no doubt the in the last five years government spending has grown too quickly, twice as fast as the economy, and over the next five to ten years government won't be growing as vigorously and we need to do everything we can to enable the private sector to generate the jobs that we all need.

GUYON Can I talk about superannuation, because they basically say that there's half a million people on superannuation now, that that will more than double to 1.3 million people by 2050 and that there are serious concerns about the affordability of that. Why not follow Australia's lead and gradually increase the age of entitlement to 67 years old?

BILL Well in the first instance because we said we wouldn’t.

GUYON But that’s an excuse Minister, not an answer, isn't it? It's actually political cowardice, isn't it? You're saying because this could risk us getting thrown out of office we're not going to do it, rather than actually addressing the economic aspect of this, which is that we can't afford it?

BILL Well obviously I don’t agree with that. We made a number of undertakings during the 2008 election, and that would be one of the more important ones to give super annuitants the reassurance that there wouldn’t be change, particularly at a time of uncertainty.

GUYON Can I clarify that Minister? Is that through the whole potential tenure of the government? As long as you are Finance Minister you will not increase the age of eligibility for superannuation?

BILL Well the Prime Minister speaks for the government and he's been absolutely unequivocal - as long as he's Prime Minister, there won't be changes in entitlement to National Super. Now look I think we've gotta keep this in perspective. National Super is not the only programme the government runs. It's a significant one. It's less than a 10th of what we spend, we are focusing pretty hard on the rest of government spending to make sure we're getting value for money.

GUYON Sure, does that include means testing, Minister, for superannuation? I know you're saying it'll be 66% of the average wage, and it'll kick in at age 65, but are you ruling out any form of means testing for superannuation?

BILL Yes we are.

GUYON That will not happen under your watch either?

BILL That’s right.

GUYON Can I talk about other spending cuts that have been talked about, I mean Federated Farmers was quite strong on this week, saying that we needed to cut government spending, and you said in response “we're only just coming through that recession, as we get into next year the lid does come down on government spending, and I would expect that groups like Federated Farmers will be supportive of the kind of changes that come with that squeeze on government spending”. Is that an indication of further cuts than what we have talked about, and in what areas?

BILL Well what's happened is this year, the 2009 spending went up by over two billion dollars, and some of that was momentum that was in the system, and quite a bit of it was the government keeping its promises. From June 2010 there'll be half of that new money coming in, so 1.1 billion by historical standards is a very low amount of new money to come into the budget, and that is certainly going to create pressure across the public sector. So we've spent this 12 months talking with the leadership of the public sector, telling them to think three to five years, that over that kind of period they won't be getting much new money. They're getting I think quite realistic in line with what's happening in the rest of the community, and that is going to create some pressures, there's no doubt about it. So for instance at the moment there's a discussion going on with Federated Farmers about sharing the costs, sharing the costs of bio security. So they want spending cut back, part of that process will be a bit less available for every bio security event that happens, so we want to share the costs with them, and of course they're not quite so keen on that.

GUYON Cutting spending and maintaining a lid on spending isn't really an idea though is it? Where are the ideas from National to make us richer and more prosperous?

BILL Well that’s part of the picture and actually to be able to maintain that kind of constraint is going to …

GUYON I respect that, and we've spent quite a bit of time on that. Can I ask you to address that other side of the equation, what other ideas have you got to make us more prosperous?

BILL Well we are focusing on the growth side of the equation. That’s really important, and what you'll see picking up momentum over the next 12 months or so is a strong focus on infrastructure investment because that’s long term, we need to keep doing it even though we're tight for cash; a strong focus on a better business environment and cutting through the red tape, because we'll only get new jobs when business decides to invest, new jobs won't be coming from government they will be coming from the private sector. A lot of focus on new ideas and innovation around public sector productivity, and of course there's been plenty of media coverage about the Tax Working Group, which is looking at whether we've got the most efficient tax system.

GUYON Well let's move to that. You're essentially looking at trying to reduce the top personal rate down to 30 cents in the dollar, and potentially helping fund that with moves like increasing consumption taxes like GST. That’s the nub of it isn't it?

BILL Well they’ve looked at a number of aspects, I mean the Tax Working Group's generating what's pretty much mainstream advice from around the world, which does look at whether you can change the balance of lower income taxes, higher consumption taxes, and in our case more taxes on property.

GUYON We haven't got a lot of time left, so I just want to get some clear indications from you. Are you looking at reducing the top personal rate – seriously considering?

BILL We haven't seriously considered any of this. The Tax Working Group will report to us pretty soon, and I think you’ve seen from National a focus on what will work, that’s important, what's actually going to shift the balance in favour of savings and investment and jobs, and also on fairness, because any move with tax, tax affects everybody, any move with it has to be not only fair but seen to be fair, and that’s a pretty significant constraint on any big change.

GUYON Final question. What is the most important policy as Finance Minister that you want achieved in the remainder of this term?

BILL I think the most important policy is to have a thriving business environment, because we need a fast growing private sector to generate the revenue for our public services, but most importantly to generate the jobs for people who have lost them, for the thousands of young people trying to get into the workforce, and for the people who feel insecure even though they still have jobs. So a thriving business environment is going to be critical to our economic growth.

GUYON Thank you very much Finance Minister Bill English for joining us this morning.

ENDS

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