Q+A: Finance Minister Bill English
Q+A: Finance Minister Bill English interviewed by
Corin Dann
Trump victory has helped
change the economic situation globally which ‘will work
for New Zealand’ - Bill English
‘But look, the
interest rates starting to rise, I think, is a healthy sign
of normalisation in the global economy and here. I see the
NZ dollar’s dropped back under US 70 cents for the first
time in quite a while. That would be a healthy rebalancing
for our export sector. So, in a sense, the thing we’ve
been waiting for for three or four years — that is a US
economy with enough strength to lead to a rise in interest
rates — is starting to happen.’
CORIN And Trump has been the
catalyst?
BILL
Well, he seems to have set off the process, which I
think was underway anyway. But it’s one that I think will
work for New Zealand. We could get a rebalancing of the
exchange rate for exporters. Let’s see if that
happens.
Finance Minister Bill English told Corin
Dann, ‘if interest rates come up a bit, people will get a
bit more sensible about the debt and the housing market. A
bit of inflation is actually not a bad thing in an economy.
We’ve probably had not quite enough. People will be
compensated for that. They’ll probably see their wage
increases come up a bit. Certainly, benefits would keep up
with inflation.’
Bill English also conceded Working for
Families, ‘turned out to be a reasonably effective way of
reaching the families with children and families that are on
low incomes.’
Please find the transcript attached.
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Q + A
Episode
38
BILL
ENGLISH
Interviewed by CORIN
DANN
CORIN This month's massive
earthquake is top of mind for Finance Minister Bill English
as he looks ahead to his spending priorities in the election
year, and one of them may be tax cuts. Last week, while in
Lima, the Prime Minister talked about the need to raise
living standards outside of normal wage growth. And while
tax cuts is one way to do that, John Key said it wasn't
always the best way, especially for low income families. So
I asked Bill English — was that an admission that the
market economy isn't delivering gains for middle and lower
income
Kiwis?
BILL Well,
we’ve got a much more positive environment to make these
kind of choices. US, UK, Europe — often big fiscal
deficits, high levels of government debt, economies growing
slowly. And that’s part of what’s frustrating for
them.
CORIN Do you
agree with him that you need to lift New Zealanders’
living standards outside of wages, that that mechanism is
not actually working for some New
Zealanders?
BILL Well,
I agree we can do that, but because we’ve got the choices
and the
capacity—
CORIN Do
we need to do
that?
BILL Well,
this is what the government’s considering right now. But
my point here is we have a positive context in which to make
decisions to ensure that everyone in the community gets the
benefits of a strong growing economy. Overseas it’s a much
more defensive context where governments are worried they
can’t deliver to people who are starting to get
frustrated. This is an economy that can deliver.
CORIN Some might
think that this is a defensive move by your government that
you are seeing this trend and you are rushing to give people
tax cuts to defend
yourself.
BILL Well,
look, I think we’re pretty mindful of,
particularly for low and middle income families, there’s
been 25% growth in the average wage over the last six or
seven years that’s pushing some of them into higher tax
brackets that might be comfortable. Pressures of housing
cost. We have a growing economy, budget surpluses, so
we’re just being pretty open, actually, about the choices
we have.
CORIN I
don’t want to labour this point, but isn’t it
extraordinary that you’ve got 3-4% growth in an economy
that is expanding at a rapid rate, yet you’ve got the
Prime Minister saying he can’t lift living standards for a
big bunch of New Zealanders without giving them,
effectively, a
handout.
BILL I
don’t think he’s saying that. I mean, benefit payments
are increasing, national super’s increasing in line with
wages, wages have been increasing moderately but
consistently, because we have out ahead of us government
surpluses.
CORIN Do
you agree with the Prime Minister that you need to look at a
families package here and not a tax cut? That it may be that
you need to look at accommodation supplements or Working for
Families as the best mechanism to help those
people?
BILL All of
those options are there. I find it difficult to imagine
you’d do only a package that consisted of changes in tax
rates and thresholds, because that can achieve some things
with incomes, but for a lot of lower income people, it
doesn’t achieve
much.
CORIN Some
people would say that’s just spin, though, because
there’s been a little bit of a backlash against tax cuts,
particularly in the wake of the Kaikoura quake, pressures on
your finances, that you’re just trying to find a new term
for this in order to give that election year lolly
scramble.
BILL I
wouldn’t agree with that. I mean, the government’s
developed a record of attending to the issues around
incomes, including for those on the lowest incomes, as we
did with our hardship package a couple of Budgets
ago.
CORIN What
about timeframes? You’re saying there’s a package
you’re looking at. What are the timeframes here? Would you
announce that in election year for the following year, or
are you going to have to push it out another
year?
BILL The
events of the last couple of weeks, I think, have shown why
you need to be a bit flexible. So if you’d asked me that
question three weeks ago, there was at least a billion
dollars’ more room to move, possible two or three billion
dollars’ more room to move over the next three years than
there is today, because that’s the money the
earthquake’s going to take out of the system; probably a
billion just in the next six months or so. So we’ve always
kept that pretty flexible. We’ve got a range of choices.
We’ve got things we need to do — investment in
infrastructure to support this growing economy, some
pressures in parts of public services. Our top priority is
getting debt down precisely to maintain our capacity to deal
with things like large earthquakes you didn’t expect to
happen. And so any movement on family package or tax
reduction has to fit in that
context.
CORIN But
you’re looking at $2 billion or $3 billion in quake costs,
you’re looking at a big defence spend, you’ve got $2.5
billion you’ve got to find for prisons over the next few
years, and realistically in health you’ll be putting in
another $600 million or $700 million, I’m sure, in the
next Budget. Where do tax cuts fit into that, given the
Prime Minister has said you really need to spend $3 billion
on tax cuts.
BILL Well, look,
we’ll make prudent choices about it. You’re right about
all those pressures. Those are all there. If none of those
existed, then there’d clearly be room to spread the
benefits of growth, lift people’s incomes. The fact that
those pressures are there just means that there’s
trade-offs that have to be made. Being able to achieve any
of them requires ongoing sensible fiscal management. So
there is no opportunity for spending large amounts of money
on programs just to feel good that aren’t going to achieve
anything. If we want to be able to deliver on that list,
including in lifting people’s incomes, then we’ve got to
maintain pretty tight
management.
CORIN Okay,
here’s the thing. Can you give New Zealanders an absolute
cast-iron assurance that you will not offer up tax cuts at
the same time as increasing borrowing — in your track,
your borrowing
track?
BILL Well,
that’s very unlikely that we would be continuing to
increase borrowing at the same time as reducing
taxes.
CORIN But
this is the critical bit, though, isn’t it? Because you
can’t realistically offer up a families package or a tax
cut package if it means you have to borrow more. So can you
tell us once and for all no extra borrowing, whether it be
capital or operating
expenditure?
BILL Well,
as I said, given the events like the earthquake, you can
never quite know exactly what’s going to happen, so I
wouldn’t give an absolute guarantee because I just can’t
predict the future accurately
enough.
CORIN Just
looking again at the international picture with Donald
Trump. We’ve seen a bit of a shift in markets over the
last month or so where markets seem to be predicting a much
stronger US economy, infrastructure spending, and interest
rates have certainly started to turn around. And we are
seeing that here with fixed interest rates rising in New
Zealand. Are you worried about that in that we could easily
see another per cent on those fixed rates, perhaps, next
year. You’ve got million-dollar mortgages in Auckland. Is
that going to put Kiwis under
pressure?
BILL It
might put a few under pressure who really overextended
themselves. But, look, the interest rates starting to rise,
I think, is a healthy sign of normalisation in the global
economy and here. I see the NZ dollar’s dropped back under
US 70 cents for the first time in quite a while. That would
be a healthy rebalancing for our export sector. So, in a
sense, the thing we’ve been waiting for for three or four
years — that is a US economy with enough strength to lead
to a rise in interest rates — is starting to
happen.
CORIN And
Trump has been the
catalyst?
BILL Well,
he seems to have set off the process, which I think was
underway anyway. But it’s one that I think will work for
New Zealand. We could get a rebalancing of the exchange rate
for exporters. Let’s see if that
happens.
CORIN That
means Kiwis are going to pay more for petrol, they’re
going to pay more for imported goods, and how is that going
to help those on the low
incomes?
BILL We
could get a bit of inflation, right? So the criticism for
the last couple of years has been inflation too low. This is
what I mean by normalising. If interest rates come up a bit,
people will get a bit more sensible about the debt and the
housing market. A bit of inflation is actually not a bad
thing in an economy. We’ve probably had not quite enough.
People will be compensated for that. They’ll probably see
their wage increases come up a bit. Certainly, benefits
would keep up with
inflation.
CORIN And
do you think—? Let’s get to the housing market that is
still clearly running far too hot for your liking, I’m
sure. Do you think that a rise in interest rates next year
would be enough to pull it back, or do you still think
you’re going to have to give the Reserve Bank more tools
to whack it into
shape?
BILL Well,
let’s see what happens, but I’d say that the fact that
Reserve Bank’s cut and it hadn’t passed through to lower
interest rates is a pretty clear signal to borrowers and
households we’re on an interest rate floor at the very
least. And when they see rates rising, that does have an
impact. Even if you know that they’re going to rise
sometime, it’s still different when it actually happens
and they’ll be recalculating what their debt servicing is
going to be, and I think it’ll make our housing market a
bit more
sensible.
CORIN What
about immigration? Do you personally think New Zealand can
cope with another year of 70,000 net
migration?
BILL Well,
look, it would be unprecedented. We haven’t seen that
before.
CORIN It
would be, but can we cope with
that?
BILL Well, I
think we can cope. The other question, of course, is can we
cope without it when we’ve got so much demand for the
skills that come with our migrants. So the government’s
trying to get the balance right here. We made some changes a
couple of months ago that are going to have the effect of
tightening up the flows a bit for migration. As soon as
we’ve done that, we’ve started getting noise,
complaints—
CORIN You
can see that New Zealand’s looking increasingly— Which
is a compliment to New Zealand and your government, I guess.
More and more people want to come
here.
BILL Well,
they do, and fewer New Zealanders are leaving, which is the
biggest single change. But we are now getting out of the
business community quite a lot of complaint about the fact
that any tightening in the rules is going to make it hard
for them to get the labour they
need.
CORIN But you
must also see the political challenge in this in that, as
we’ve seen in the UK and as we’ve seen in the US, people
who aren’t perhaps getting ahead are concerned and looking
at immigration, and that’s where they’re pointing the
finger of
blame.
BILL Well,
again, because we’ve got this relatively unique positive
economic growth, it’s a different context. So in the UK
and in the US there are skilled people who just haven’t
been able to get work for a long time, and if they have,
their incomes have stayed low for years. In New Zealand
that’s not the case. People can get jobs. We’ve got the
highest participation rate in the labour force we’ve ever
had. Unemployment heading down under
5%.
CORIN Yes, but
coming back to where we started, even your prime
minister’s saying you can’t raise the living standards
of those very people you’re talking about without giving
them a tax cut or increasing some supplementary
payment.
BILL I
don’t agree with you that that’s what he’s saying.
What he’s saying that in this
positive—
CORIN
He says outside of
wages.
BILL The
wages are rising moderately but consistently in a growing
economy. The fact is that growing economy is going to
provide the government with some surpluses which would give
us the opportunity to spread those benefits around in
addition to rising wages. So we don’t see it as a way of
offsetting the effect for people who haven’t been able to
get
anywhere.
CORIN I
seem to recall when Labour brought in Working for Families,
John Key was calling that Communism by stealth, and yet now,
eight years on, your government is looking at increasing
those very types of
supplements.
BILL Well,
it’s turned out to be a reasonably effective way of
reaching the families with children and families that are on
low incomes.
CORIN
So he was wrong,
then?
BILL Well,
there was a debate about it then. We’ve been here for
eight years and didn’t get rid of it, so we’ve clearly
accepted the reality of Working for
Families.
CORIN Just
finally on the issue of immigration, we saw the seasonal
workers quota increased by another thousand. We’re not
talking hugely highly skilled jobs here. I mean, there are
obviously some skills involved. Why can’t New Zealanders
be trained to do those jobs? Why isn’t there the supply of
New Zealanders to do that when we’ve got plenty of
unemployed
people?
BILL Well,
New Zealanders will have to be trained, because that
decision is made in the light of advice that said they need
something like 2500 to 3000 more workers in those relevant
industries. And the government has said, ‘We’re not
going to use the RSE scheme to fill that gap. So we can lift
it a thousand because the horticultural industries are
growing really quite successfully; they’re really on a bit
of a burn at the moment, which is fantastic. But that still
leaves a significant workforce which those employers will
have to take the responsibility of recruiting and training
and retaining. Now, they often have complaints that the
locals don’t stick to it or don’t turn up to work. Those
are issues—
CORIN And do you
think that there is an element of New Zealanders who won’t
do these
jobs?
BILL I think
it’s pretty clear cut. It’s not a matter of what I
think. It’s a matter of what you hear when you go and talk
to employers and, actually, the people who are actually
doing the work, because they have to carry the burden of
someone was recruited, worked half the day and took off. The
person that’s left there has to actually pick the
fruit.
CORIN So
when Winston Peters and others get up there and argue that
you guys should be doing more to get Kiwis to do these jobs,
you’re arguing that Kiwis don’t want to do
them?
BILL And what
that means is we have to work with the employers. They have
to take responsibility, because in the long run it’s their
business, they’ve got to get their own fruit picked.
We’ve got to look on the welfare side in particular,
because there’s detail about how the welfare system works
that seems to make it a bit easy for, for instance, a
21-year-old young guy who meets the requirements by turning
up but he doesn’t have to stay. And so the anecdotal
evidence is sometimes they’ll turn up and then they’ll
go away again.
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