Q+A March 17: Corin Dann interviews Bill English
Q+A March 17: Corin Dann interviews Bill English
Sunday 17 March,
2013
The Finance Minister told TVNZ’s
Political Editor Corin Dann on Q+A this morning that the
cost of the drought could double.
Finance
Minister Bill English says the on-going drought could slash
$2 billion off the national economy. That figure is twice
the $1 billion estimated last week.
“Well,
we’ll be getting updated advice over the next few weeks
from the Treasury as we prepare the forecasts for the next
Budget in the middle of May. But the latest advice is that
somewhere between $1 billion and $2 billion will be knocked
off our national income, and as every week goes by, the
prospect of it being $2 billion instead of $1 billion
grows.”
Bill English told Q+A that the drought
could potentially knock 30% off New Zealand’s growth rate
in a year.
“This underlines for us the importance
of our primary production sector.”
The minister
conceded that there is a need for our economy to diversity
in the long run.
On the budget, Bill English says
the government will be sticking to a fairly predictable
direction and that there’s unlikely to be major tax
reform.
English says essentially programmes like
Working for Families and Student Loans will remain the
same.
“No, we made a number of decisions a couple
of years ago to trim those programmes. There’s some
on-going tidying up been going on, particularly in the
tertiary education sector.
But the substance of those
programmes will stay in place.”
When questioned
about Solid Energy, Bill English says he wants the banks to
take some responsibility for the company’s
debt.
“I think that’s really important.
They’ve lent money, and as lenders, they take risks. And
if they lend to a company that’s affected by a very sharp
downturn in coal prices and then
loss of a quarter of
their export sales, they’ve got the same risks as banks
who lent to resource companies all around the world that
have got in trouble.”
He concedes that in 2009,
the government asked its taxpayer owned companies to
contribute more cash to the coffers.
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Q+A
CORIN
DANN INTERVIEWS BILL
ENGLISH
CORIN
DANN
Finance Minister
Bill English, you have heard what Professor Renwick has had
to say about the future of weather and farming. Just on the
issue he raised there, not enough leadership on the issue of
the adaption, NZ’s adaption to climate change. What do you
make of that?
BILL ENGLISH - Minister of
Finance
Well, I don’t agree with that and for
two reasons - one is that we have a very open, unsubsidised
farming sector, and they have very strong incentives to
adapt to short or long-term changes in the weather. And,
secondly, right now we’ve got a national discussion going
on, a public discussion about new rules for the use and
distribution of water - something previous NZ governments
haven’t confronted. That’s a discussion going on about a
national framework for water, about getting the balance
right between environmental and economic sustainability. And
by the end of this year, we’ll pretty much have a new
framework in place, and I think that’s a pretty good
demonstration of
leadership.
CORIN
Do we have, though, a framework, do we have a
national strategy, for example, on adapting to climate
change?
BILL
Well, we’ve got climate change policy built
around the emissions trading system, which has bipartisan
support. That debate’s going to go on. With respect to our
primary production, though, the driver of that adaptation
will be the incentives on the farmers, and the government is
doing its bit with the new water
framework.
CORIN
Sure, but we don’t have a strategy, as such? Your
government isn’t making adaption a big
priority?
BILL
Well, look, some of this is just about how you
label things. I mean, we’re putting hundreds of millions
into research around primary production that will include,
for instance, new cultivars that are going to be more
drought-resistant. As I said, we’re doing a water
framework which is all about how to get water storage and
how to get environmental sustainability and the use of water
for farming.
CORIN
But you are the leaders, and the point that Dr
Renwick was making here was isn’t it about leadership? The
message that is coming from the top down to New Zealanders
about climate change and about the need to adapt? And there
is a lack of that
message.
BILL
No, I simply don’t agree with that. I think New
Zealanders right now, particularly the farming families who
are dealing with the stock welfare issues, the financial
issues, the issues of personal stress, they know what’s
needed. What’s needed in the first place is rain. But,
secondly, they’re quite adaptable, and I don’t think the
government has got much it knows better than they to change
the way they run their
businesses.
CORIN
But you in Parliament this week were essentially
questioning some of the predictions from NIWA. You were
saying that there is always uncertainty about these
predictions. ‘I recall similar predictions made by
scientific bodies in Australia just four or five years ago,
and it’s not stopped raining since.’ Now, that was
pretty dismissive, wasn’t
it?
BILL
Well, it’s a statement of fact about Australia.
They were going through a discussion about how they’d run
out of water for cities, and it hasn’t stopped raining
since.
CORIN
Yes, but it’s also been the hottest summer on
record in
Australia.
BILL
Well, look, I don’t think there’s much to be
gained by some argument about climate change or how it works
or not. The fact is we’ve got a very high-impact drought
right now. As a country, we are reliant on the people who
actually manage the environment, which is the farmers, to
adapt in the very short term to the severe impact of this
drought, and, in the longer term, if we’re going to go
through a drier cycle. And as I think you quoted earlier,
farmers have been doing that for
decades.
CORIN
But doesn’t it matter what the government thinks?
Doesn’t it matter whether you think this is different,
that this is climate-change induced, that we’re not just
going through the normal cycles of droughts? That this time
it’s different, whether you think that or
not?
BILL
Well, look, I think what matters is that the
government does what it can to ensure the economy can be
adaptable, that people who are running the farms, people who
are running the businesses off-farm that are going to be
affected by this drought right through provincial and rural
NZ are able to be adaptable and they make the choices that
do it. I think the government is doing a good job of
it.
CORIN So
what you’re saying is you’re not going to take
leadership on this
issue.
BILL
As I’ve said, we have taken leadership on this
issue. For the first time ever, the NZ government is
addressing directly policy framework around water to ensure
that we can enhance its storage and that we can get the
right balance between economic and environmental results,
and that is a discussion we’ve never had. We’ve invested
three or four years in getting to this point. There’s a
large amount of good will and enthusiasm for progress, and
by the end of the year, we will have achieved something no
other government has achieved and that is a direction and
framework around our use of
water.
CORIN
All right, Mr English, if we could move on to the
Budget. What sort of impact will this drought, do you
think-? Well, firstly, what’s your latest advice on the
impact to the economy of this drought we’re seeing at the
moment?
BILL
Well, we’ll be getting updated advice over the
next few weeks from the Treasury as we prepare the forecasts
for the next Budget in the middle of May. But the latest
advice is that somewhere between $1 billion and $2 billion
will be knocked off our national income, and as every week
goes by, the prospect of it being $2 billion instead of $1
billion grows.
CORIN
So that’s new. So earlier in the week you were
saying $1 billion. You’re now saying it could be $2
billion.
BILL
It could be. The context for that is about $200
billion of GDP, which we would expect to grow by $4 billion
to $6 billion in a year, and that’ll be pegged back by
somewhere between $1 billion and maybe $2 billion if this
drought continues. And there’s really nothing else that
can knock 30% off NZ’s growth rate in a year. This
underlines for us the importance of our primary production
sector.
CORIN
Does it also underline the fact that perhaps we
need to diversify a little bit
more?
BILL
Well, yes, in the long run, I suppose it does. We
are a fairly weather-dependent economy - whether it’s our
electricity or our primary production or the cash flowing
through our provincial
cities.
CORIN
So what is your government doing to help diversify
this economy? Because with the high dollar the way it is at
the moment, it’s certainly not going to be manufacturing
that fills the
gap.
BILL
Well, manufacturing continues to grow. In fact,
with these circumstances over the next year, maybe
manufacturing will grow faster than primary production,
which will be a bit more
diversification.
CORIN
All right, on the Budget, we’re only six weeks
away or so. So you’re starting to think about that. Are we
likely to see any major tax reforms, any major programmes in
this
Budget?
BILL
Well, there’ll be further steps in the
government’s programme of on-going, moderate and
consistent change both to get our public spending under
control and get back to surplus, but also to improve the
competitiveness of the economy. So we’ll be sticking to a
fairly predictable direction. There’s unlikely to be major
tax reform.
CORIN
What about spending? I mean, you do have some money
allocated for spending. Are you going to spend all of that?
$1 billion or
so?
BILL
Well, we’ll probably be spending all of it. Look,
the public service has done a very good job of dealing with
quite small increases in spending. We had a couple of
Budgets where it was a net zero. This time it’ll be a bit
higher than that. But the focus will stay on improving
public services, even though a lot of public services
won’t be getting more money, but, you know, health and
education and welfare
will.
CORIN
What about the big programmes - Working for
Families, student loans? I mean, my understanding was you
were asked by Treasury late last year to look at putting
interest back on student loans, for example. Will you touch
any of those
biggies?
BILL
No, we made a number of decisions a couple of years
ago to trim those programmes. There’s some on-going
tidying up been going on, particularly in the tertiary
education sector. But the substance of those programmes will
stay in place.
CORIN
All right, if we could move on to Solid Energy. Can
you give us an update on where things are at with the banks?
When will we know whether the government is going to have to
bail out Solid
Energy?
BILL
Well, that will be some months yet. There’s
discussions going on with the banks now about stabilising
Solid Energy. Some of the information around its cash flows
is a bit more positive than we might have expected. But we
will get a period of two to three months through to the end
of June where we can look at all the options for recovering
value for the taxpayer in the first place and, secondly, to
decide whether there is an on-going viable business in the
middle of this-
CORIN
Are you saying it’s making a bit more money than
you thought now and that it might be able to get itself out
of
trouble?
BILL
Well, I wouldn’t go that far. All I’m saying is
the cash flow numbers are just a bit more positive than we
expected. I mean, if you look back, Solid Energy made some
very substantial investments in some of its mines. Some of
those worked out, such as in Stockton; some of them
didn’t, such as in Spring Creek. But where they have
invested, they’ve got capacity for production and for
value, and if coal prices are at some kind of reasonable
level, then there is a business
there.
CORIN
Do you want the banks to take some of the heat on
this?
BILL
Yes, I think that’s really important. They’ve
lent money, and as lenders, they take risks. And if they
lend to a company that’s affected by a very sharp downturn
in coal prices and then loss of a quarter of their export
sales, they’ve got the same risks as banks who leant to
resource companies all around the world that have got in
trouble.
CORIN
You can see the irony in that, though, because you
told them to borrow
more.
BILL
Well, and you were talking about it as a
revelation. We did a press conference back in 2009 about the
need for our SOEs to take
on-
CORIN
But you know that timing is everything with these
things, and that was a revelation coming at this time, given
your government had tried to distance itself from this
issue. You even blamed Labour for it, for what they said in
2007.
BILL
No, I don’t agree with that. In 2009, the
government was facing a decade of deficits because of the
Labour Party and the recession. And we quite reasonably said
that our taxpayer-owned companies should contribute more
cash to the coffers. That’s the point of owning them. And
Solid Energy had paid barely- had paid almost no dividends
for the previous five or six years, and they had very low
levels of debt compared to their asset value. So, look, in
retrospect-
CORIN
But there was a good reason for that, wasn’t
there? Because they were a coal
company.
BILL
That’s right. Look, in retrospect, they would
have been better off with lower levels of debt, but as I
think Don Elder and John Palmer said at the Select
Committee, the board is there to make the decisions about
what the actual levels of debt are. Bear in mind, in 2011
their debt had peaked and was declining, and then they got
hit by the perfect storm in
2012.
CORIN
But you were telling all SOEs to raise their debt
to a 40% gearing, and Solid Energy told you they were not
comfortable with that, and there was a good reason: because
they were a volatile coal company. Surely that was too much
pressure you were applying to
them.
BILL
Well, clearly not, because their debt peaked at
under 35%, which was the level the board set, which was
lower than what the government was expecting. And in 2011
their debt levels were actually declining from that, and
then they got hit by the perfect storm. So, yes, would they
have been better off with no debt? Yes, just like lots of
businesses and households would be better off with no debt.
Then they got hit by these circumstances which may well have
put the company into trouble even if it had no
debt.
CORIN
The issue also, of course, has been around their
investments. Now, your government must take some
responsibility, surely, for the oversight of what they were
investing in. You were the one down in Southland turning the
first sod with the lignite plant. You knew what they were up
to.
BILL
Well, and it’s yet to be seen just whether that
particular investment has on-going potential or not.
Clearly, some of them don’t. Some of them may do. That’s
what’ll happen over the next two to three months. But what
you’ve got to keep in mind here is that under the SOE
model, politicians are not there to run the companies. We do
not make the investment decisions. The boards make the
investment decisions, and the weakness in the model is that
there’s no market scrutiny of those board decisions, and
that is why the partial sell-down of the electricity
companies will help with the monitoring and the performance
of those
companies.
CORIN
And are you confident there will be much better
decision-making, that these MOM companies, in general, are
going to have better board making
decisions?
BILL
I think mixed-ownership companies will, but
there’s a real challenge for government with the lessons
from Solid Energy. When you look ahead, the companies that
the government will own all have their challenges - NZ Post
with the shrinking postal market, TVNZ and the digital media
environment, a coal company if there is still a coal
company. And we are going to have to change the way we work
with these companies to ensure that we don’t lose
taxpayers’ money. Because the taxpayers’ money in these
companies doesn’t come out of the sky; it comes from the
PAYE and the GST paid by NZ households. And we have a strong
responsibility for the stewardship of that
money.
CORIN
Finance Minister Bill English, thank you very much
for your
time.
BILL
Thank
you.
ENDS