Sunday July 1, 2012

Corin Dann interviews Bill English

Confirmed unemployed will face drug tests to get the benefit:

“I’m told by those employers they often can’t employ our own locally unemployed young people because they can’t pass a drug test.”

Minister expects rebuild in Christchurch to “ramp up” in next six months and become attractive place to find work.

Beyond existing WINZ supports, National not looking to help unemployed move to Christchurch.

English has no fears of a new housing bubble: “We’re not on the edge of a housing boom.”

“…it’s actually not a bad sign if people are taking advantage of the lowest interest rates we’ve ever had to get the housing market back to somewhere near its normal level of activity.”

Kiwi battlers on $45,000 “actually are getting a bit of income growth”, just “not as much as we would like”.

Biggest “head wind” frustrating efforts to rebalance the economy has been high exchange rate.

Q+A, 9-10am Sundays on TV ONE.

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Q + A – July 1, 2012

BILL ENGLISH

Interviewed by CORIN DANN

CORIN Good morning, Mr English. If we could start with these targets. You’ve been targeting the public sector yourself, making it your mission now for four years. Why bring in targets now and not four years ago?

BILL ENGLISH – Minister of Finance
Well, I think because they’re ready for it. The first two or three years was spent working with the public service to understand how the organisations work to maintain front-line services, despite the fact that money’s pretty tight. And we think that we’ve now got the tools in place, the leadership to have a real crack at some of our long-running social problems, and I’d have to say the public service has responded in a very motivational way to that.

CORIN Well, they don’t have any choice, do they? Because you’ve set down targets, is there a danger now that they will just focus specifically on those targets to the detriment of other parts of the civil service?

MR ENGLISH Well, look, they do have a choice, and in fact the government departments have been a big part over the last 18 months of getting to the position where we’ve announced these results, and we don’t make any apology for the fact that we think these things are important, so protecting more of our vulnerable children is more important than a lot of other things that some government departments may have been spending the time and money on.

CORIN There's going to be debates about what's important, presumably, though, within the public service. For example, we’ve got 230,000 children living in poverty. Why isn’t that one of the goals?

MR ENGLISH Well, we’ve worked with the Maori Party there on issues related to poverty and a lot of this policy is focused on those things that enable people to move up and out of poverty, such as more educational achievement, not being the victims of violence, not reoffending if they’re a former prisoner – all of those things help people out of poverty.

CORIN Well, let’s come to that target of long-term beneficiaries who have been on there for one year. You want to get that down by 30%, which is a big target. It does depend on jobs and creating jobs. How are you going to do that?

MR ENGLISH Look, it is going to be a challenge, like most of these results. We’re not saying they’re easy, and to achieve them needs the focus of a lot of people, not just public servants. But in the case of jobs, our growth agenda is focused almost entirely on helping businesses make the decision to grow, because where you get the jobs from is a business deciding to invest a bit more money, employ another person and do well enough to be able to pay a higher wage. And we’ve got half a dozen areas around growth and businesses which we’re focusing on. We’re talking to business about that consistently, and you’ll be hearing more about it over the next few months.

CORIN Yeah, well, I want to talk to you more about that in a minute, and we will get to private sector growth, but let’s just quickly on these targets and with that beneficiary one, you’ve made that quip about drug testing beneficiaries, but, seriously, is that the type of thing that you're going to need to do to move people on?

MR ENGLISH Well, if you take— In my electorate, a lot of the jobs available to younger people are in forestry and in the meat-processing industry, and I’m told by those employers they often can’t employ our own locally unemployed young people because they can’t pass a drug test. So back in the election campaign, we made a commitment to having a policy where people who are meant to be available for work should be in the position where they can pass a drug test, for instance, so they can get a job in the forestry industry.

CORIN That wouldn’t apply across the board, though, you’re saying? That wouldn’t be for—?

MR ENGLISH No, that’s right.

CORIN So it’s just the job-seeker – this new job-seeker category?

MR ENGLISH Yes, that’s right.

CORIN Alright, the other thing is with jobs – you’ve got to find growth in the private sector, don’t you? You talk about the fact that the private sector is the one that creates jobs, yet we’re not seeing any investment in the private sector. There's nothing happening.

MR ENGLISH Well, I wouldn’t agree with that, Corin. I think it’s more patchy. So you could talk to two or three different people in the same sector of the economy, even running shops in the same street, and you’ll find one of them’s expanding; one isn’t. We’re looking at job creation of 20,000 to 30,000 new jobs per year, and that’s the new jobs. There's also a very high turnover as well. Now, that’s not as fast as we would like, but we want to focus on those things around getting young people with the skills right, getting the infrastructure right, getting our energy prices stable – all the things that help them make the decision.

CORIN But with respect, Minister, all those things, you’re targeting all those areas, the public sector, making it all nice and neat and tidy so that the private sector can go out and do the business, but they’re not doing it and they’re not feeling inspired, because they’ve got a European crisis and various other things constraining them and making them feel uncomfortable about investing, and that could go on for five to 10 years. So what happens in the interim? Do we just sit and deal with a stagnant economy?

MR ENGLISH Well, no, we certainly don’t do that, and a lot of businesses aren’t doing that. Yes, Europe is a worry. It’s a dark cloud that’s going to stay on the horizon for a long time. But we believe with the combination of the big opportunities in our export markets – because we’re on the doorstep of all the fastest-growing economies in the world on the one hand – and a strong focus in New Zealand on the competitiveness of our businesses, where we help them with things – the 90-day trial employment period is a good example, or cutting ACC levies, as we have done, by $600 million this year – all those small things add up—

CORIN I know those little things are adding up, but it’s not actually making any significant difference. Alan Bollard’s talked about an investment drought. If we look at our productivity growth going forward, the ability of the New Zealand economy to grow at any speed that doesn’t create inflation – it’s 1.5%; that is not going to get us anywhere near Australia and give the types of incomes that New Zealanders want.

MR ENGLISH Well, look, it’s certainly not moving as fast as we would like, but we are on track for moderate growth of 2% to 3% over the next couple of years. By international standards, that is actually very good. And I agree with you – I think there is a risk that New Zealand and the businesses in it get overly concerned about the international situation, but what I’m seeing every day is remarkable resilience, particularly in our export sector, who’ve been dealing with a high exchange rate now for four or five years. Remarkable resilience of households and businesses making the changes they can make, influencing what they can, and the government is there to help them do that.

CORIN But investment intentions in the latest business confidence survey are down There isn’t a feeling that they’re suddenly going to start doing that. What I want to know from you – do you still have faith that this economic model, the idea that it’s the private sector that’s going to suddenly going to give us this business cycle recovery that we all used to have, still works? Has the world changed so much that actually you do need to start doing something else?

MR ENGLISH Yeah, look, we certainly have confidence in our plan, and we see across New Zealand a resilience and actually more confidence than I think the indicators show that we’re on the right path. Now, that doesn’t mean it’s easy. It doesn’t mean that people are expecting some wave to come through and pick them up. In fact, I think they’re just getting used to that: there isn’t going to be a wave come through—

CORIN But can I pick you up on that?

MR ENGLISH …they have to grind it out.

CORIN But that’s fine for people on incomes like yours and mine, for TV presenters, but what about those Kiwis who are battling on $45,000 a year trying to pay off mortgages? They’re not going to get any income growth to be able to get ahead.

MR ENGLISH Well, they actually are getting a bit of income growth. Not nearly as much as they would like, but compared to a lot of the developed world, where incomes have actually been cut, they’re in reasonable shape. Now, look, I think people have quite a realistic grasp of this. I think Kiwis know what's going on in the economy. They know that there isn’t some magic bullet. I mean, if there was, we would certainly fire it. No doubt about that. I fact, the level of understanding of these issues is as high as it’s ever been, as far as I can recall.

CORIN OK, let’s talk a little bit about Christchurch. I asked you a month or so ago about beneficiaries, and whether or not you would encourage them to move to Christchurch. Do you still support that idea and would you actually look at incentives for people who are seeking work to go to Christchurch, help them with accommodation, or, likewise, would you say, “If you don’t go to Christchurch, we might penalise your benefit”?

MR ENGLISH Well, look, I wouldn’t go that far, but the incentive is going to be there, because there's going to be jobs there. And the level of activity in Christchurch is picking up steadily, and I think over the next six months, you’re going to see it ramp up into quite an attractive place for people who are looking for work. In fact, we’ve put in place specific training places, and hundreds and hundreds of them so people can make that transition—

CORIN That’s fine. I know the market will do its thing, but the market’s not going so well when it comes to rentals down in Christchurch. It takes some time. Will you be prepared to maybe hurry things up a little bit and say to somebody who’s lost a job in South Auckland or whatever or wherever, “Hey, look, if you go to Christchurch and do this work, perhaps an unskilled job, we might make it a little bit easier for you”?

MR ENGLISH Well, we would certainly be putting that choice to them, and WINZ have the opportunity to help people in some respects. These days, they do spend money on helping people with transport costs, with getting their overalls and boots and stuff, so, yes, that is possible

CORIN So could you look at a serious programme of this? I mean, we hear that lots of migrant workers are going to come in anyway. Why not go around the country and find Kiwis who are keen and get them down there?

MR ENGLISH Well, that’s exactly what's happening with the range of training programmes. We just signed off another one—

CORIN But is there any actual concrete measure to do that or plan to do that?

MR ENGLISH Yes, there are. There are concrete actual training places right now We just signed off another 200 or 300 young Maori training places just last week, and there's hundreds of others that are being set up with ministers making sure that we take exactly the opportunity you’re talking about.

CORIN Yeah, but you had $42 million to spend on training last year, but you only spent $7 million of it in Christchurch.

MR ENGLISH Yeah, well, isn’t that good? We’ve still got the rest of it left as the build picks up pace.

CORIN Alright, can we move now to the rebalancing of the economy? Do you think you’ve done a good job in rebalancing the economy?

MR ENGLISH I think we’ve done our best to achieve rebalancing, but we’ve had some pretty major head winds. And probably the biggest one has been the effect of the high exchange rate on our export sector. So we’ve had good expansion in the export sector with high prices, but a lot of that’s been offset—

CORIN Yeah, but there's a reason for that – because money’s coming into the country to fund a housing boom that’s starting to take off again. That’s what's driving our currency up, isn’t it?

MR ENGLISH Well, I don’t know. I don’t quite agree with that. We’ve got a bit of price pressure in the central Auckland housing market, but everywhere else, it’s pretty flat, and you’ve just got to look at the credit growth for housing is only a little bit above zero, so we’re not on the edge of a housing boom, but we do—

CORIN No, hang on a second, because home-loan approvals are up 27% year on year according to the Reserve Bank. The value of those approvals is up 44%. The fact is that pretty much the only investment going on in New Zealand is housing, when it should be going into the productive sectors, so that suggests we’re not rebalancing at all.

MR ENGLISH Well, look, we would expect the pick-up in the housing market, because it’s been way below the normal turnover of houses and the normal number of new builds, so it’s actually not a bad sign if people are taking advantage of the lowest interest rates we’ve ever had to get the housing market back to somewhere near its normal level of activity. But you’re quite right about the long-term challenge. We do need to get more capital and people into our export sector, because in the long run, we have to earn our higher incomes, not borrow them.

CORIN So what are you going to do to do that? Because what you’ve done so far hasn’t worked.

MR ENGLISH Well, here are some of the steps we’re taking. First is to make government less of a growing influence in the economy. So we’re actually going to relatively shrink over the next four or five years. With respect to the housing market, we are working right now on the response to the Productivity Commission report on housing affordability.

CORIN So that’s like land supply, isn’t it? That’s like greenfields land supply in Auckland – that type of issue?

MR ENGLISH Well, it is that type of issue, and whether they can build, you know, dense terraced housing or not. We need more supply of housing if we’re going to stop the house prices going up.

CORIN Has Reserve Bank governor Alan Bollard expressed concerns to you that he’s worried about a housing market bubble?

MR ENGLISH No, he hasn’t. Look, he says the same things to me as he says in his public speeches. He’s a very transparent governor, so if he was really worried about it, you would hear about it.

CORIN Well, he was pretty worried about it. He’s certainly monitoring it pretty closely and he’s asked you for some tools to help him. Have you agreed to give him tools, such as getting rid of low-deposit loans and making the banks hold more capital?

MR ENGLISH Well, we do discuss with the Reserve Bank tools alongside setting the interest rate to control fast-growing credit. Now, that’s a bit of yesterday’s battle. That was the case bank in 2007, but credit growth at the moment is close to zero. People are not borrowing much more.

CORIN But the current account is heading towards 6%. It’s 5%, so, I mean, we’re clearly spending more than we earn as a country.

MR ENGLISH Yes, we are, and that is a long-run imbalance in the New Zealand economy, and it’s going to take quite a while of earning more than we spend – a couple of decades, actually – to get somewhere back to, say, the ideal of a current account surplus.

CORIN Can I just ask very quickly, have you agreed to those tools with Alan Bollard? Will you give him those extra tools?

MR ENGLISH Oh, they’re using those tools now. They’re a regular discussion.

CORIN But he said he’d asked for new ones at the MPS just recently. Have you agreed to those tools?

MR ENGLISH Well, look, we’re discussing these new tools all the time. It’s part of an international trend, and—

CORIN So not yet?

MR ENGLISH Well, no, they are using those tools now. Like, the core-funding ratio is actually a requirement on our banks today and has been for 18 months There's some pretty refined discussion to go on about the way decisions are made about how to regulate people’s borrowing. That’s got a wee way to go yet.

CORIN Can I just ask you finally, Mr English, you’ve been in this job four years – are you still as passionate about it as ever? I mean, you have concentrated on the public sector and done an awful amount of work there. You’ve done the hard yards, haven’t you, really? You’ve got that stake coming down in terms of the size of the economy. Do you still want to do this job?

MR ENGLISH Oh, look, it’s a great job, and actually we haven’t done the hard yards. We’re right in the middle of it. New Zealanders and their households and their businesses have been making significant changes over the last few years. The government is just part of that, and it’s great to be headed in the same direction.

CORIN Do you have the vision? Do you have the new ideas? Do feel invigorated about the different challenges that, clearly, are presented for our private sector?

MR ENGLISH Yes, definitely, because I think there's a growing understanding now that growth comes from businesses making decisions that are positive about the future, and government wants to help that, but I think families, communities want to see their businesses thrive, and that’s the best environment we’ve had for progressive economic policy in a long time.

CORIN Finance minister Bill English, thank you very much for your time.

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