Q+A interview with Bill English & David Cunliffe
Sunday 6th November, 2011
Q+A interview with Bill English & David Cunliffe.
The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can be watched on tvnz.co.nz at, http://tvnz.co.nz/q-and-a-news
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BILL ENGLISH & DAVID CUNLIFFE interviewed by GUYON ESPINER
PAUL In these volatile economic times, National and Labour have different answers to our economic questions. Labour’s promising a capital gains tax, compulsory savings, moving retirement age to 67 and more borrowing in the short term. National is planning partial asset sales but say there’s no need to lift the retirement age. They want to cut spending rather than borrow. Political editor Guyon Espiner is with National’s Bill English and Labour’s David Cunliffe.
GUYON Thanks very much, Paul, and thank you two for coming in and joining us this morning. We really appreciate your time. Now, before we start talking about the economy, let’s have a look at how confident voters feel about the economy. We’ve got some new graphics here from our Colmar Brunton poll. You’ll see that back in September, this is what we thought about whether the economy would get better or worse. Now, in our latest poll, voters are feeling more optimistic about how the economy will perform over the next year. You can see there 47% believe things will get better over the next year. Those who think things will get worse have dropped significantly, and you can see that overall about two-thirds of us feel the economy will either stay the same or improve over the next year. So let’s start with you, David Cunliffe. Are you one of the one-third of people who think the economy will actually get worse over the next year?
DAVID CUNLIFFE – Labour Finance
No, I’m not. I think the economy should improve unless we have a complete meltdown in the rest of the world, and the reason for that is that it’s often extremely low base. In fact, at the moment, the GDP track is lower than was forecast in Budget 2009 in the middle of the global financial crisis. GDP is 3.2% lower now than when National took office. We’ve got 50,000 more unemployed and 37 billion more debt, so you'd hope it would improve from here.
GUYON Mr English, is it just a case of rebuilding Christchurch, natural disaster and the fact we’ve got very poor economic growth at the moment that things are going to get slightly better?
BILL ENGLISH – National Finance
I think those figures show remarkable resilience. I mean, New Zealanders have been through global recession, the earthquakes had a big impact. They’ve just rolled up their sleeves and got on with it, and I think they’ve got a sense of the direction. And, of course, there’s going to be all sorts of buffeting, but this economy is now on a track to growth by world— by developed country standards, reasonable growth, but it’s vital we keep pushing in the right direction with stronger incentives, new jobs, stronger exports.
GUYON It’s all fairly hands-off stuff from you, though, isn’t it? You don’t think that there’s any big ideas to actually push the economy forward. It’s all about creating the right environment for the private sector to do exactly that.
BILL Well, it’s certainly been hands-on, actually. That’s why we’ve had a very big tax change last year. This year is zero budget in election year. These have been aspects of the plan to get back to surplus, to get the incentives right in the economy, back the people who create the jobs, which is the businesses. There’s no new job until a business is confident enough to employ a new person, and we back that with 90-day trial periods. Mr Cunliffe, you do, though, believe that there are big ideas that can create jobs, don’t you?
GUYON What are they?
DAVID Well, part of it is solving the long-term problems that are holding the economy back, and you don’t have to trust the Labour Party to understand what they they are. Trust the rating agencies. They’ve been really clear – we don’t save enough, we’ve got a damning external deficit and we need to get exports up, and we’ve got a long-term fiscal crunch because of our ageing population. Now, Labour’s got policies that sort all three out. Savings – compulsory universal KiwiSaver. Exports – monetary policy, economic development. Long-term fiscal crunch – pre-fund super, raise the age gradually while protecting the vulnerable. Now, I’m not going to talk in glib, forgive me, slogans. I want to get down to the nuts and bolts of what is actually going to change to lift New Zealand’s economic performance.
GUYON Can we pick one of the ideas that you did talk about, Mr English, some time ago? We had the Prime Minister on the show a couple of years ago saying that between 3000 and 5000 jobs could be created by having New Zealand act as a financial hub. How many of those jobs have been created?
BILL Well, that’s turned out to be quite complex, and we’re on a long-term track there, and we’ve taken a couple of early steps around approved issuer levy and so on. But I think the reality here about jobs is not solved by raising the age of eligibility. It’s actually solved by doing what we’re doing, because there’s 60,000 new jobs over this two-year period, forecasting 35,000, 40,000 new jobs each year, and that comes down to very practical things that make a difference to the people who make the employment decisions. So next year we will cut ACC levies by 700 million. That’s 700 million that stays in the economy, that’s available to pay more wages, to invest in a new machine and manufacturing business that is going to need a new operator. The 90-trial period means that people can get a foot in the door and a small employer can take a risk. Those are real jobs and real reasons to do it.
GUYON And the 90-day trial, Labour’s going to abolish that, aren’t you?
DAVID We are. We are because we think that the downsides in terms of the insecurity for workers and the trouble that it will bring in terms of industrial relations is more important than the supposed benefit the minister’s talking about.
GUYON Do you think, though, that it would lead to people being less likely to take on a new worker if they weren’t able to get rid of them without a personal grievance within that first—
DAVID Whether there is a job there, Guyon, depends upon the economics of the business. If there’s a sustainable job that will create sustainable value, people will hire for it. Now, it won’t be determined by a ‘90 day fire at will’ bill. Just like the youth-rates issue might pinch a job off an older worker to give to a younger one, but it doesn’t change the fundamental economics of the business. So forgive me again, but this is papering over the cracks. The fundamental decision facing New Zealanders is muddling through okay, and there’s the kind of trickle-down economics where you make business happy in the short term and everything else blooms a thousand flowers – has that worked in the past? Will it work this time? I don’t think so.
GUYON Okay, I want to move on to one of the crucial economic policy differences in this year’s election campaign, and that is asset sales. And I want to start by reminding people what John Key said about partial privatisation on this show back in July. Let’s have a look at this.
Well, firstly, I don’t believe that’s the big issue that’s going to turn the New Zealand economy around. If someone can convince me that floating 25% of Meridian is somehow going to be the salvation of the New Zealand economy—
GUYON Mr English, he’s right, isn’t he?
BILL Yes, he is, but we’re not—
GUYON So why are you doing it?
BILL For a number of reasons. One is the government’s going to keep 51% of this, and I think that’s important. When people understand that, they relax a bit about the anxiety. But there’s a number of benefits. One, it gives New Zealanders something to invest their growing savings in apart from finance companies. Secondly, it’ll get our public stock market back in action, because growing jobs and exports needs formation of capital. We need our capital markets working. They’ve been shrinking for the last 10 years. It gives the government the opportunity to get more cash to invest in other infrastructure without having to go and borrow from the market, and we get better performance from the companies, which are critical companies in the New Zealand economy.
GUYON I’m going to come to you in a minute on this, David Cunliffe, but I just want to tease this out with you, Mr English. You say you’re going to get between $5 billion and $7 billion from selling four energy companies and Air New Zealand, for 49% of them. Isn’t it true, though, that that depends on the market, the sharemarket, the international appetite for those, and there’s no way that you can guarantee you’re going to get that much money. It could be less, couldn’t it?
BILL There’s no guarantee. Bear in mind we’re talking here about 3% of the government’s assets, that our assets will continue to grow and that dividend flow will continue to grow. With respect to market conditions, we get to make the decisions as we go along, but it’s our belief as the owner of these assets that they’re going to be attractive to investors.
GUYON You’ve booked the money and you’re starting to ear it for rebuilding schools, etc, but you can’t guarantee that you’re going to get that much money for it, can you?
BILL We can’t guarantee the amount, but these are of considerable worth. I mean, people pay their power bills every week. They feel like they’re paying a lot. That is what underpins the value of these companies, so they’re certainly worth a lot of money.
GUYON Mr Cunliffe, National claims that in the absence of this policy, you will have to borrow $3 billion more over the next four years for capital spending on things like schools because there’s no provision in the accounts for that spending. Is that true?
DAVID We will be investing the same amount in capital spending as in National’s plan—
GUYON But you’d have to borrow for that.
DAVID In the short term. We’re being completely transparent about this. Yes, we will need to do some extra borrowing, and we’ll fund some of it out of savings, but we will need to do some extra borrowing over the very short term. But we will return to operating surplus in the same year as National, and with the capital gains tax flows coming through—
GUYON Talk about this in a minute—
DAVID If I might. We will get to a zero net debt position quicker than National. Now, New Zealanders don’t want the assets sold. That’s very clear from many many opinion polls. We know that and for good reason. And it’s almost too many to list, but let me do a quick run-through. The first is it’s not profitable. Within nine years, we’d be in a worse financial position than we are now, so this is really stealing from tomorrow in order to paper over the cracks of today. We say let’s put in place the solutions that will drive the economy forward—
GUYON Can I ask you this – is your position to never, ever, ever sell any asset, no matter whether it’s Learning Media, which publishes school textbooks, and let’s say we arrive in a world where kids aren’t learning like that? My point is – is this just a position for you that you could never ever sell anything?
DAVID Labour’s position is very clear. We will not sell down large-scale state assets.
GUYON No matter what it is?
DAVID What you do have under a distributive board model—
GUYON Can I get that clear?
DAVID We will not sell SOEs, period.
GUYON Not anything, not any part of them, ever?
DAVID We will not sell SOEs – that is our policy.
GUYON Can I ask you why when in the early part of last decade, Air New Zealand was rescued by the government and you ended up owning roughly three-quarters of the airline, why for six, seven, eight years with good surpluses did you not buy back the remaining 25% of that?
DAVID Because having recovered from a terrible situation where there was a board split with conflicts of interest and an airline that was being run into the ground partly because of problems with minority shareholding, Michael Cullen rescued that company, bought it back, but as part of the arrangements for the buy-back, allowed 25% of it to stay in private hands with a double hands-off arrangement and private board.
GUYON Would you like to buy it back? I mean, it’s quite a glaringly obvious point, isn’t it? You’ve got an airline—
BILL They’ll have to. On their policy, they’ll have to buy the rest of Air New Zealand. Why aren’t they buying the rest of the stock market if the government-owned is so much better?
DAVID Why if National believes in free enterprise do they think the only way the stock market can function is to flog off a whole lot of government assets? Why doesn’t capitalism provide growth in the stock market. Again, it’s trickle-down and selective use of the free market.
GUYON Before we move on, can you answer that? Would you buy back the 25%?
DAVID No, we have no plans to buy back the 25%.
GUYON Okay. Mr English, I’m wondering what these companies might look like, the energy companies, for example. I mean, what is the dynamic change that you’re going to see? I mean, are they going to partner up with other players, create and sell new subsidiaries? What’s your vision for what these big companies are going to look like if it comes to pass and you do get a partial privatisation of them?
BILL Well, they’ll have opportunities they don’t have now. Probably the main opportunity is access to new capital. These are companies that know a lot about renewable energy, for instance. They’re all quite different, three electricity companies. They’ll be able to have access to the market capital – capital from the market – and the government will contribute if it needs to keep its share, which will enable them to probably make decisions that are more commercial, more long term than when the government owns them. The government as an owner has never actually put capital into these companies, so there’s opportunity for growth as part of growing exports, in this case, energy services to a world that’s hungry from them, particularly in the Australian and Asian area.
GUYON Okay, we better—
DAVID Can I just—?
GUYON We’re going to come on capital gains tax.
DAVID Can I just quickly raise an issue?
GUYON You probably do want to talk about.
DAVID I do, but can I just—
GUYON Very quickly.
DAVID Minority shareholders will have rights which ultimately could allow them to sue the government if their profits are not maximised. Let’s be very clear – a 49% sell-down of an SOE means it’s effectively no longer an SOE. It will be a publicly listed company for all intents and purposes.
GUYON Okay, I’m sure that argument will continue. Let’s move to capital gains tax, obviously a big part of Labour’s economic policy this election. Do you believe that it’ll have a real and material impact on the property market? Can you give a figure as to how much people are going to stay away from the investment property market if the capital gains tax comes in?
DAVID Well, I can give you a couple of estimates that have been from published studies. The Savings Working Group, the government’s working group, suggested that about half of the impetus in the last property bubble was due to the lack of a capital gains tax, so therefore, logically, having one like we’ve got one—
GUYON So it would dampen the property market?
DAVID It wouldn’t remove the cycle, but it would dampen the cycle so we don’t have these extreme swings of boom and bust. That’s a really good thing because at the moment, the Reserve Bank is having to take care of that by hiking interest rates, that hikes the exchange rate, that kills exporters. Just because property developers in Auckland are going crazy, dairy farmers or manufacturers or IT companies in Christchurch ideally shouldn’t be hurt by that. A capital gains tax solves the problem or at least partly solves the problem at source.
GUYON Mr English, if you were designing a tax system from scratch, I mean, regardless of whether you like Labour’s policy or not, and I know you don’t, you must agree that a capital gains tax – taxing profit that is made from selling a farm, selling an investment property – in principle, it’s not a bad idea?
BILL Everyone who’s looked at this, including the Savings Working Group or whatever, ends up with the same conclusion. In the real world, you can’t put capital gains tax on family homes – that’s three-quarters of your property market. And the complexities that arise from that mean it’s not worth it, so the steps we’ve taken are actually more immediate. Capital gains tax doesn’t earn revenue for a long time Actually, what capital gains are there out there? There aren’t any.
DAVID Half a billion by the end of this term.
BILL So we went into— Well, that’s only if the housing market goes up, and actually—
DAVID That’s on an average projection—
BILL What’s happening with housing—
GUYON There’s no point talking over each other.
BILL What’s happening with the housing market I think demonstrates the success of the measures we’ve taken, which are– there’s a couple of significant ones. One is more resource into IRD to get the traders who should be paying capital gains tax who haven’t been, and secondly, we’ve abolished depreciation on investment— property investment, which means this year we’re collecting $800 million more revenue—
GUYON We’ve got to go the break very soon, but just quickly, can you guarantee that the tax would be 15% and no higher?
GUYON You wouldn’t raise that?
GUYON All right.
GUYON ESPINER INTERVIEWS BILL ENGLISH AND DAVID
CUNLIFFE PART TWO
GUYON Is it time to raise the age of retirement? We asked voters whether they agree with Labour’s plan to raise the retirement age in the latest ONE News Colmar Brunton poll. We asked them, ‘Hey, do you want to put it out to 67 years old by 2033?’ So let’s take a look at the results of that now. The country’s pretty much split down the middle there. You can see 47% say yes. 48% say, no, they don’t want to do this. So that’s from our latest ONE News Colmar Brunton poll. You can see that we’re pretty much exactly split down the middle on that result. Bill English, are you surprised that there is so much support for people saying, ‘Yeah, I’ll work two years longer?’
BILL ENGLISH – National Finance
Well, interestingly, the people who are opposed to it are more likely to be David’s voters, actually, the people who work pretty hard for a long time. Look, we’ve built into all our projections a 65-year-old age of eligibility.
GUYON Before you get into that detail and we will take that, it does show, though, doesn’t it, that there’s popular support. People realise. They look around the world and say, ‘Things are pretty grim. We’re going to need to do this,’ so, you know, it’s not quite the political suicide that people had long said it would be.
BILL Well, the government’s position has been clear, actually, National’s position from before the 2008 election, where National made a very firm undertaking. And the point of that was at a time of uncertainty after a long period of dispute in New Zealand about retirement income to give older people as much certainty as possible, so we’re sticking to that position. The critical point here is to have a growing economy creating jobs, because it doesn’t matter what entitlement you build up for the future, if the economy is weak, older people are going to be poorer.
GUYON Mr Cunliffe, you’d be quite buoyed, I suppose, by the result of that?
DAVID CUNLIFFE – Labour Finance
It’s what we would’ve roughly expected. And to be fair to Mr English, I sympathise with his position. He’s said it’s a legitimate debate. His bosses tried to make a political stunt out of it by saying he’d retire before doing it. New Zealanders know that there is a huge hole in the numbers, and if they didn’t know, then Standard and Poor’s has reminded them. And our policies will fix the books to the tune of $100 billion—
GUYON Yeah, that’s by 2050.
DAVID Yeah, and it’s a long-term problem. But when you retire, you’ll want super there for you, and young New Zealanders want it there for them, and they don’t want the baby boom like me and people older cleaning up the money and leaving them nothing but debt. That’s why 100,000 young Kiwis have left New Zealand already in this term of government.
GUYON I guess
the question becomes, if it’s such a big deal, why don’t
you need to move earlier?
DAVID Because we think that the fairest way to do this is to have a long, slow, gradual transition so that people can organise their affairs in an equitable manner. And we want to protect vulnerable New Zealanders during the transition. To come back to Mr English’s point, if you are unable to work easily in your current job, you will be eligible to apply for a transitional super payment at no less than the current level from 65 years old and we will look at flexible draw-down options so you can perhaps take a lesser amount earlier. I think that’s an idea that the government’s even toyed with. New Zealanders won’t be any worse off under this policy, but it’s secure. It’s sustainable. People know they can count on it, and I think that’s why half of New Zealanders can read the writing on the wall.
GUYON Okay, can we move backwards in people’s working lives from retirement to work and to wages? Mr English, is $13 an hour enough to live on?
BILL People can live on that for a short time, and that’s why it’s important that they have a sense of opportunity. It’s like being on a benefit.
GUYON What do you mean for a short time?
BILL Well, a long time on the minimum wage is pretty damn tough, although our families get Working for Families and guaranteed family income, so families are in a reasonable position.
GUYON So why not lift it up to $15 an hour like Labour’s saying?
BILL Well, in the first place, we’ve lifted it consistently since we became the government in chunks of 25c or 50c. It’s our view that going faster would destroy jobs. I mean, if the issue is jobs, then why would you go with a bunch of policies that actually makes it harder to create jobs, like pushing the minimum wage up too fast, 1970s industrial law, more costs on business?
GUYON I think that’s just
going to provoke some disorder, but at $15— Let’s start
on the principle of this. Do you believe that there’s a
link between the level of the minimum wage and
DAVID Only at the margins, and the more important drive is how productive is your economy? Workers with good tools and technology and capital are more productive on higher wages. This is the thing – we’ve never going to outcompete China with $1 an hour wages—
GUYON So why not make it $20 an hour?
DAVID We need to be smart. Well, look, very soon I hope it will be. It’s $19 in Australia, and that’s one of the reason 100,000 New Zealanders have gone there during this minister’s government.
GUYON If Australia can support a level of the minimum wage – I haven’t checked, but—
BILL No, I don’t think that’s correct.
GUYON But it’s at least $17 Australian—
DAVID Kiwi dollars – 19.
GUYON 19. I think that is close to about right. If they can support a minimum wage a lot higher, then why can’t we?
BILL Well, just go and ask the businesses. I mean, I think that’s the test. If you go into businesses and say, ‘Okay, you’re all on $13.75, $14 an hour. Tomorrow that’s going up to $15 an hour,’ the business has got to get the extra revenue or it can’t support that job. And this is a point here to get more jobs, and we all want more jobs, they can only happen when that business has the confidence to do it. Now, over time, of course, you can lift the minimum wage, but shifting it a long way alongside 7% KiwiSaver contributions, putting increasing ACC levies again, 1970s industrial law, that is a recipe for destroying the confidence of businesses to employ people.
GUYON A quick rebuttal from you, David Cunliffe, and then we’ll move on to balancing the books.
DAVID In the last year, 43% of workers didn’t get a wage rise at all. The median wage has down in this term of government. People can’t feed their children on $42 an hour. I’m angry because I meet my constituents and they are struggling. You bet we’re going to put the minimum wage up to 15 bucks and we’re going to give people the first $5000 tax-free and we’re taking the GST off fruit and vegetables because New Zealanders are suffering. They’ve had the worst of both worlds under this government. The unemployment rate has virtually doubled, average and median wages have declined, and this economy is going nowhere. And, unfortunately, it’s not going to go anywhere until a government has the courage to solve the problems that are holding it back. Muddling through is not good enough.
GUYON Okay, now let’s move to balancing the books. It’s a good point to make that transition, because you say you’re going to borrow $4 billion more than National over the first four years.
DAVID Which will be matched by over $4 billion more assets and will have no impact on net debt—
GUYON In a world where debt is a dirty four-letter word, why would you do that?
DAVID Go to the ratings agencies’ report. The ratings agencies did not downgrade Mr English’s government, the first time in 15 years, since he was last a finance minister, because of short-term government debt. They did not say, in fact, they said the opposite – we have relatively low public debt. We have huge private debt, and we have to get private savings up, and we have long run negative fiscal problems because we have an ageing population.
GUYON Mr English—
DAVID We are solving those problems.
BILL Well, the short-term number’s more like 14 billion, not four when you take into account all the jiggery-pokery. But, look, that’s before you add the Greens, and as Russel Norman made pretty clear, Labour couldn’t govern without the Greens—
DAVID So now we’re debating another party’s policy?
GUYON He didn’t interrupt you with respect.
BILL That’s right. So you’ve got to add to Labour’s accounting the demands the Greens are going to make. They want thousands of subsidised green jobs. They want higher benefit levels. They want bigger payments on Working for Families. And you’ve got to add that on top, so the risk around a change of government that goes into a mindset that says short-term debt doesn’t matter, well, actually, it does matter. That’s the business—
GUYON Are you ruling out any relationship with the Greens now?
BILL Well, we’re ruling out going with anything that’s going to push up the debt situation.
DAVID Can I just come back on short-term debt does matter?
GUYON I’ll pick the same thing up here because what you look at when you look at your figures, one of the key elements is the $6 billion that you’re borrowing to put into the super fund.
GUYON Now, to a lot of people it might sound fairly risky to estimate that that’s going to make you more money by investing in the international sharemarket. Is that a safe thing to do?
DAVID It’s prudent commercial policy to match the life of our assets, in this case, financial assets, with the life of our liabilities, in this case, the retirement debit we face certainly in the future. Second point, the returns on the New Zealand Superannuation Fund even after the biggest drop since the Great Depression are still higher than the government’s cost of borrowing.
GUYON Can you guarantee that? You can no more guarantee it—
DAVID No, no, I can’t.
GUYON than Mr English is going to get $5 billion from the state-owned assets.
DAVID There is an element of risk, but it’s not like the counterfactual is risk-free. The counterfactual is we get another downgrade because we can’t afford to pay superannuation. And this is a government with its head in the sand, who won’t touch the age because they’re worried about the politics. Now it’s 50/50, Mr English. You can go and tell Mr Key.
BILL Well, this is pretty odd—
DAVID No, in terms of short-term debt, Labour’s spending track is virtually identical to National’s. In the next three years, the PREFU says they will spend $221 billion. We are— Sorry, 220. We’ll spend 221. We’ll get to surplus in the same year.
BILL No one believes that. Spending is Labour’s DNA, and when they’re not spending the government’s money—
DAVID How about we stick to the facts?
GUYON He didn’t interrupt you—
BILL Well, that was the record. And when they’re not spending government’s money, then they pass legislation to spend your money, and that’s the minimum wage and all that stuff. With respect to the super, look, this is pretty odd logic – that somehow the least risky thing the government can do is borrow six billion in international markets that are turning puce because of all the problems in Europe and put it into the international sharemarket, which is more volatile than it’s ever been, no New Zealand households are doing that. They’re not raising a mortgage to buy shares in the international equities market And that is why we are not going to go back to the super fund until we’ve got a surplus, and that’s why there’s a big question over the credibility of a party who says, ‘It’s not really borrowing. I went to the bank. I’ve got a $200,000 mortgage, but because I’ve bought a house, I’ve got no debt.’
GUYON And we’ve got to leave it there. Thank you.
DAVID The Savings Working Group agrees with us, for what it’s worth, so do the ratings agencies.
GUYON You’ve got the last word, I’ll give you that.