ACC Levies May Drop by More Than First Thought: English
Sunday 20 October, 2013
ACC Levies May Drop by More Than First Thought: English
The Government is planning to reduce ACC levies by as much as two billion dollars over the next two-three years, Finance Minister Bill English said today.
Speaking to Corin Dann on TV ONE’s Q+A, Mr English said that ACC has “by combination of things, including just doing a better job of rehabilitating people sooner” given the Government the opportunity to reduce levies substantially – “the equivalent of a four cent cut in the company tax rate.”
Mr English also told Corin that in the same two-three year time-frame, New Zealanders can look forward to higher pay increases.
“The good news for the punter is that business confidence is at the highest it’s been at for many years. That indicates that in their workplaces, there’s growing confidence that they can sell more, that profits are going to be up, that pay rises are coming.
“There are some things that will force them to do it. One is just their need to get hold of skilled people. We’ve already got skill shortages in some areas. As employment— As new jobs grow, you’re going to see more of that,” Mr English says.
Auto-Enrolment in Kiwisaver to Return: English
If and when the Government returns to surplus, auto-enrolment in KiwiSaver will be re-introduced, says Finance Minister Bill English.
Mr English told Corin Dann that the Government was still committed to auto-enrolment, which would mean everyone not currently enrolled in KiwiSaver would be automatically signed up, with the option to opt-out.
But paying down debt would be the first priority, said Mr English.
“We’re still borrowing at $110 million a week, and before the next recession turns up, we want the government balance sheet to be back in a good position, that it can run up debt again if it has to or if we have another earthquake.”
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Minister English, thank you very much for joining
us. Well, listen, you were pretty negative when you came
back from that visit. Are you just trying to frame the
debate here so that Labour can’t go into next year’s
election making big spending promises?
BILL ENGLISH – Minister of Finance
No, we’re just trying to be realistic. The fact is that the developed world economies – US, UK, China and two or three years away, Japan – all have to work out how to get off the drug of printing money. And speaking to a wide range of people very closely involved with it, ranging from Ben Bernanke right through to people working in the US Congress, no one quite knows what that’s going to be like. The answer for us is to be as resilient as possible, that whatever waves they generate, that when they wash up here, we can handle them, and, actually, we’re in pretty good shape for that.
CORIN Well, I’ll pick you up on that, because an economist this week said we’re pretty much the ‘rock star’ economy of the developed world; we’re heading for three, some economists are even predicting four per cent growth, so why so negative? Why can’t we have a bit of a lolly scramble?
BILL Well, look, it’s not negative about us. I think New Zealanders have done a fantastic job of getting through this recession, reorganising the way they do things and getting on to the point where we’re in the top half dozen of developed economies for creating jobs and more incomes. But I think we just need to be aware that when we’ve had such unprecedented circumstances with the Federal Reserve and US printing money still at the rate of $80 billion a month, these are extraordinary circumstances. Interest rates around most of the world are between nought and one per cent, and that’s actually unprecedented.
CORIN Yeah, but, Minister, people have had that for five years now. They’re a bit sick of that. They’ve got 1.7 per cent pay increases on average. They’re not getting any benefits. They want to see some gains. Can you guarantee people on the ground that they’re going to start seeing decent increases in their pay packets?
BILL Well, look, on average, they’ve been getting pay increases ahead of inflation, and we want to see—
CORIN Yeah, but inflation’s virtually been zilch – nothing.
BILL That’s right, and so the pay increases have been moderate, and I think a lot of New Zealanders are now starting to see the confidence in the businesses and organisations they work for that indicate they can look forward to some higher pay increases over the next two or three years. Look, the reason I’m drawing attention to these international circumstances is because they’re real, because the implications of the global financial crisis go for decades, not for a few years, and we’re just signalling that the Government’s going to be a bit cautious. The good news for the punter is that business confidence is at the highest it’s been at for many years. That indicates that in their workplaces, there’s growing confidence that they can sell more, that profits are going to be up, that pay rises are coming.
CORIN But what guarantee is there that those firms are going to pass on those benefits that they’re getting from the increased demand? There’s nothing to force them to do that.
BILL Well, actually, there are some things that will force them to do it. One is just their need to get hold of skilled people. We’ve already got skill shortages in some areas. As employment— As new jobs grow, you’re going to see more of that.
CORIN How long will that take? How long will that take?
BILL Well, it’s happening now. I mean, you go to the construction industry, for instance. You can see the pressure around skills. Just look at the ads on Seek or on Trade Me and pretty clear commentary from the personnel companies about skill shortages. That’s a good thing for the wage earner.
CORIN So what do you expect the unemployment rate to be, say, come the next election?
BILL Well, look, it’ll be dropping, and we’re just doing some forecasts now, which will be announced just before Christmas, and that will show a continuing record of the unemployment rate gradually dropping—
CORIN But are we talking about around five per cent?
BILL I don’t think it’ll reach five per cent by the election, but it’ll be headed in that direction. Unemployment hasn’t dropped as fast as we would have liked, that’s for sure, and we’re doing a lot of work to support and help people on the edge of the labour market to get into it with some more flexible labour market policy, like the 90-day trial period and more active welfare policy.
CORIN Sure. Isn’t the problem you’ve got, though, just as the economy is going to start coming right, when you should start to see some wage increases finally coming through, albeit it, I would argue, probably slowly, people are going to get whacked by rising interest rate hikes, aren’t they? They’re going to be getting money sucked out of their wallets because of higher interest rates.
BILL Well, bear in mind here that New Zealand’s got the lowest interest rates in 50 years. Our interest rates are affected by world interest rates. World interest rates have never been between zero and one before in history, so we’re in a very unusual situation. Interest rates are bound to normalise, that is, get back to the kind of long-run levels that have been there for 30, 40 or 50 years, and so what we’re focusing on is policy that will keep interest rates lower for longer. But, look, I think most people have read the signals. The Reserve Bank, who set our cash rate, have been signalling for a year or so that interest rates are going to rise, and I think most people have probably built that into their calculations.
CORIN You don’t think this is a big political problem for you, that you are going to effectively be blamed for rising interest rates that could, in fact, happen? We could see hikes in the middle of election campaign.
BILL Look, it’s not a matter of who’s getting blamed. It’s a matter of the reality and whether you’ve got an economy that’s resilient enough to adjust to it. I think it would be fair to say people have had pretty clear signals that, for instance, households getting themselves into very high levels of debt are going to come under pressure as interest rates begin to rise. But, look, if the Government keeps its spending under control, if we work hard with the supply side of the housing market, then there will be less pressure on interest rates.
CORIN The other problem you’ve got, though, as interest rates go up, you’ve got a dollar at 85 cents US, as it is today. I mean, where is that going to go? You could be looking at parity.
BILL Well, there’s been the odd mention of that. That’s to a large extent dependent on the health of the US economy.
CORIN Do you think it could get to parity, though? I mean, where’s it going from here?
BILL No, no. I don’t think it’ll get to parity. I think the US economy is in reasonable shape. We keep …eventually, it is … the growth is coming in the US economy. Their interest rates will start rising, and when that happens, it will rerate our dollar. But you’re right, that’s one of the small percentage threats. There’s a small chance that the US economy doesn’t pick up and we end up with a higher dollar than we have.
CORIN Well, it might not feel like a small percentage threat to the likes of those saw millers in Rotorua yesterday who found out they may be losing their job. I mean, again, an industry which is suffering because of a high dollar.
BILL Well, there’s contradictory forces in that industry, with record log prices as well, and that’s hard on our local processes. And that uncertainty is very tough for the workers at that Rotorua sawmill.
CORIN So why not step in and help them out like you have Solid Energy, say, the workers at Tiwai? Why not help the region of Rotorua?
BILL Oh, simply because we only step in in extraordinary circumstances, such as the smelter, with the size of it, the impact on the electricity market. There are a very large number of jobs involved there. So in that case, they’ve clearly tried pretty hard to keep the thing going, they haven’t been able to succeed, and our job is to ensure there’s other opportunities for the workers who can’t stay in that sawmill.
CORIN Well, it seems a little bit unfair that you’re stepping in to help out big business, but an industry such sawmilling, which has been doing it tough because of the dollar, gets nothing.
BILL No, I don’t think it’s unfair. Look, it’s a pragmatic way of making decisions. We could say, ‘Hands off. We don’t help anybody.’ We’ve made the odd exception here and there in quite extraordinary circumstances. In this case, the best thing for that sawmill is not a government subsidy; it’s the opportunity for those people to get a job in another industry that’s growing. The good news is our primary production industries are growing. They’ve got near record-high prices for their products that are selling overseas, business confidence is as high as it’s been for quite some time, and the opportunity for those workers will be better than it has been at any time in the last six or seven years.
CORIN You’re saying that those workers who might lose their jobs at that sawmill – they’re going to get jobs?
BILL Yeah, I think it’s pretty likely they will get jobs, because—
CORIN What in?
BILL Well, you know, I can’t be specific, because I’m not in Rotorua looking at the individual businesses that are growing or in the surrounding central North Island area, but there are certainly going to be jobs, for instance, in the construction industries in Auckland and Christchurch. That feeds through into industry across the country.
CORIN So they’re going to have to move to Auckland and Christchurch, which is exactly the argument Labour has been throwing at you this week, that all the regions – people are having to move to those cities.
BILL Well, they’re simply wrong. All the regions grew in the last census, except for Gisborne.
CORIN But you just said those workers are going to have to go to Auckland or Christchurch for the construction thing.
BILL I didn’t say that. No, you said that, Corin. What I said was there’s lots of jobs in Auckland and Christchurch in construction; that feeds into businesses right across the country. The fact is the economy is going to be growing at three per cent, that creates job opportunities, and what we’ve found— Oh, look, I had a shutdown in my electorate. The Mataura Freezing Works lost 400 jobs. In the last census, our population still grew. Unemployment is under four per cent. Those people are capable, resilient workers, and they will find jobs.
CORIN All right, if we can move on to the issue of retirement savings, which has come back on the agenda with the Retirement Commission and the Financial Services group has also ploughed into this. Would you consider offering any tax break on savings to try and get the people, I guess, more into KiwiSaver and them saving more?
BILL Well, look, the industry’s put forward that proposition. One of the— and what they’re suggesting – a swap between the current government subsidy of $520 a year for a lower tax rate on the income of the KiwiSaver fund. Now, the question they have to answer is why is that fair when the current subsidy actually directs the government support mainly to lower— well, proportionally to lower-income savers, whereas their tax break delivers the benefit to high-income savers.
CORIN But isn’t the argument—?
BILL And they need to answer that question.
CORIN Isn’t their argument that it will move some of that bias away from rental property, which it continues to be a problem. We’ve got the BNZ just the other day saying that you’ve got rental investors coming back in to pick up the slack from first home buyers. Isn’t that going to help?
BILL Well, it potentially could do that, but they still have to deal with the fairness issue, because otherwise it would be the Government redirecting its subsidy from lower-income savers to higher-income savers, and you’d need a pretty good reason to do that.
CORIN Are you still committed to bringing back auto-enrolment for KiwiSaver if you return to surplus?
BILL Yes, that remains our policy. That would be one of the choices if and when we get to surplus to auto— The way that would work is everyone who’s not in KiwiSaver would be automatically enrolled, but they would retain the option of opting out, because quite a lot of people do opt out.
CORIN Where does that sit in the list of—? You talk about choices, so where does that sit in the list of choices once you hit that surplus?
BILL Well, our top priority would be to focus on repaying debt, because our government debt’s run up from 10 billion to a peak of around 70 billion in a couple of years’ time. We’re still borrowing at $110 million a week, and before the next recession turns up, we want the government balance sheet to be back in a good position, that it can run up debt again if it has to or if we have another earthquake. So that’s the top priority, and then there are other choices, and isn’t it good that we’re a country that’s got some choices?
CORIN Yeah, one of those choices you’ve talked about was ACC levies. You’re looking at potentially cutting a billion dollars’ worth in levies next year. Could that blow out to one and half billion, given what you’ve got?
BILL Well, that’s possible. I mean, ACC has by combination of things, including just doing a better job of rehabilitating people sooner, gives us the opportunity to reduce ACC levies quite a bit. Just to give you a sense of the scale of that, over two or three years, we’re planning to reduce those levies by about two billion. That’s the equivalent of a four cent cut in the company tax rate.
CORIN Sure. Finance Minister Bill English, thank you very much for your time this morning on Q+A.
BILL Thank you.