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Finance Minister Bill English - Source: ONE News -
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Q+A - April 5, 2009: Finance Minister Bill English interviewed by Guyon Espiner
GUYON Well Bill English thank you very much for
coming in and joining us on Q + A, we've us had the G20 Meeting the
world's most powerful economies, now John Key wrote to Gordon Brown
the British Prime Minister before that meeting outlining two
factors that he thought may constrain New Zealand's borrowing. He
says with the increased numbers of state owned banks in the UK and
the United States and the big stimulus packages that those
economies are embarking on New Zealand may not be able to actually
borrow. Are you concerned about New Zealand's ability to borrow in
this environment?
BILL ENGLISH - Finance Minister
Well I think it could be more difficult and that is why we need to
pay a good deal of attention to how New Zealand's marketing itself
to the lenders, they need to believe that we are able to obviously
repay the debt but we want to go further than that and have a
distinctive New Zealand story.
GUYON What do you mean by that how are we
marketing ourselves to the international credit rating agencies,
the people who will determine whether we can borrow the 40 billion
dollars that you're wanting to borrow over the next three
years?
Well if you think about it the relative position of New Zealand,
there's a lot of countries out there who have got much higher debt
levels who have bigger deficits, it's our job to make sure that New
Zealand is able to constrain its debt raising so that it's quite
clear that we're a good credit risk to constrain our deficits so
that it's quite clear that the New Zealand government has control
of its expenditure, and then they can put us alongside other
countries where like UK the US and any number of smaller European
countries where they're in real trouble.
GUYON So that's quite interesting, so a lot of
this pruning back of government spending, this restraint that
you're quite vocal about, is that aimed at the audience of the
international credit rating agencies?
BILL Well no, first of all it's actually aimed
at the problem and the problem is potentially that we have debt
that gets out of control, if that debt gets too high it means the
next generation has to have a lower standard of living in order to
pay the bills that we're running up now, but the ratings agencies
are I suppose the second audience, because now that the government
guarantee exists for banks the government's credit rating has
become everyone's credit rating, so it's more important than it
used to be.
GUYON How important is it, we had the respected
economic forecasters' BERL this week saying the international
credit rating agencies have blood on their hands they are the
people who gave the positive ratings to these financial instruments
that are now listed as toxic assets on balance sheets, should we
actually be paying heed to these rating agencies at all?
BILL I think we should take some notice of them
but we shouldn't be stood over by the credit ratings agencies, I
mean the point her is to do what's good for New Zealand first and
what's good for New Zealand is to borrow through the bottom of the
recession, but be constrained about it so that we don't leave for
the next generation a big pile of debt. Now it happens that what's
good for New Zealand is a story that we should sell to the ratings
agencies simply because if they downgrade us then all our debt will
cost more.
GUYON And are they listening, will they
downgrade us?
BILL Look I don't think they will but if we -
the main focus though is to get the picture right for New
Zealand.
GUYON I just want to take you back to that, you
don't believe that we will be downgraded now you seem quite firm on
that?
BILL Well look the reason for that is that I
believe we can put together a plan that is going to get us through
the bottom of the recession that's going to restrain the growth in
our debt, get us ready to repay that debt, that is the right thing
for the New Zealand economy and the right thing for future workers
in the New Zealand economy. If we do that then that's a good story
to be telling to anyone who might lend money to us and a good story
to be telling to the rating agencies.
GUYON Let me put to you something else that was
mentioned at the G20, Gordon Brown said the world needed to move to
a model of more moral capitalism. Do you agree with that? Do you
believe that capitalism has been practised in a way which is
immoral?
BILL Oh in some respects yes. Look a free
market depends on people having underlying philosophy of fairness
of transparency and of not taking advantage of everybody
else.
GUYON So in what respect has it been immoral,
you said in some respects?
BILL Oh I think the aspects of the banking
system that have brought us down in combination with some bad
policy, like in the US housing market the government passed
legislation that virtually guaranteed anyone could get a loan and
then the banking system exploited that.
GUYON In New Zealand have we had immoral
capitalism?
BILL I think we have had some and we could have
done a better job, the collapse of the finance companies I think
shows that our regulators were not assertive enough and that
allowed individuals who didn't have the risks and the concerns
taken by their investors in mind.
GUYON But what are you doing about that,
haven't you just now guaranteed them all?
BILL Well we have and that is a second best
option there's no doubt about it. If the government hadn't put a
guarantee in the previous government and National share the same
view, then the impact on the confidence of depositors could have
led to instability in the financial system, so the guarantee is a
second best option, but now it is there the government is now
directly involved with the credibility of a lot of our financial
institutions and we are beginning to take a more assertive view
about it, these are risks the taxpayers are taking...
GUYON What do you mean a more assertive
view?
BILL Well if you think the government has now
guaranteed the banks, it's guaranteed up to 60 or 70 smaller
financial institutions and we need to be sure that those
institutions are being managed in a way that is minimising the risk
to the taxpayer because if anything goes wrong there the taxpayer
gets the bill.
GUYON Let's follow that moral theme, let's talk
about fairness, about sacrifice in the recession. You said in
parliament this week that times have changed, that some of the
things that were nice to have we can't have any more, what
sacrifices are we gonna have to make in this recession?
BILL Well first the government's gotta
constrain the growth in expenditure, we are borrowing to fill a gap
maintaining entitlements, maintaining public services but we can't
keep feeding them at the rate of new money, that was the case
...
GUYON And how are people gonna feel that, how
is that actually going to affect the average person when you talk
about reducing that government spending?
BILL Oh I think in a couple of ways, one is
they can now be more assured that spending's gonna be on top - on
high priorities not low priorities. I think the other way for most
people is going to be through their pay packets, so in the state
sector we'll be looking to government departments to be funding the
pay rises that they want to negotiate with their staff and with
people out providing public services that would bring public sector
wages more back in line with the reality of what's happening in the
private sector. If people are in the public sector they have a
degree of job security that the private sector doesn't necessarily
enjoy just because the government can borrow money to fill the
gap.
GUYON Let's talk about pay packets, your tax
cuts kicked in this week, the tax cuts for 2010 and 2011 do they
fall into this category of luxuries that we can no longer
afford?
BILL Well that's something we have to consider
over the next month or so.
GUYON Well you must have been considering it
what are you gonna do with the tax cuts, are you gonna bring in tax
cuts in 2010 and 2011?
BILL Well that's a decision we'll make in the
budget. We would like to carry through with lower taxes, we think
lower taxes are good for the long run benefit of the New Zealand
economy.
GUYON But you can't afford it?
BILL Well we have to look at whether they are
affordable?
GUYON Do you think they are affordable?
BILL Well that's a decision that'll be made in
the budget.
GUYON Do you think they are affordable?
BILL Well we'll make that decision in the
budget.
GUYON So you haven't made a decision yet?
BILL No we haven't made a decision yet.
GUYON But personally you haven't got a view on
it yet?
BILL Well I get to see all the numbers and the
budget's all a matter of balance, it's the balance between the
short term and helping us through the bottom of a recession, and
the longer term which is getting New Zealand into a distinctive and
strong competitive position coming out of this recession.
GUYON What about the Super Fund, the Crown
accounts that were just released show that it lost more than
6ý% over February. When you look at its annualised returns,
its inception in 2003, it's got a rate of return of about 1.9%, now
if you put that money into risk free Treasury bills you're getting
6.8%. Are you concerned about the way this fund is actually being
managed?
BILL Well it's turned out in the shorter term
significantly different than anyone expected, it was set up in
surpluses in high returns, in the market now we've got deficits and
low returns, look I think the management of it is pretty
professional.
GUYON They're pretty awful numbers though
aren't they?
BILL The numbers are pretty awful but I think
the real problem here is that that Crown hasn't said to the Super
Fund just exactly what degree of risk it wants that fund to take
because the fund has had choices about the balance of risky assets
and less risky assets and it turns out it's been in riskier assets,
so one of the jobs over the next wee while is for the government to
be much more explicit with the Super Fund about what risks it
expects a fund that's going to last for 60 or 70 years, to be
taking.
GUYON What bout contributions to that Super
Fund you must surely now be going to suspend the government
contributions to the Super Fund?
BILL Well the Prime Minister has signalled that
that's another issue he wants us to consider in the budget. The
fund was set up at a time of in surplus when there was a view there
would always be surpluses, now we don't have surpluses so yeah it's
something we'll be having a pretty close look at.
GUYON So you must though be in a position where
you can't simply afford to borrow to save.
BILL Well again it's weighing up short and long
term, in the longer term this fund starts paying out in 2025, it to
some extent underpins the longer term future of National Super, 20,
30 years out, in the shorter term we don't have much money.
GUYON What's the Treasury telling you? You've
asked for Treasury advice on this, what's the Treasury telling
you?
BILL Well the Treasury tells me lots of things,
Treasury are very focused on you know getting the budget back into
balance as quickly as possible, keeping the debt down, getting it
back down ready for the next shock because if you let debt build up
it can take 15 years to get it back down again.
GUYON So all those signals are pointing to the
fact that you are going to suspend contributions at least for a
short time?
BILL Well I think you can take it Treasury's
advice is consistently hard line which is that the government
should spend less and borrow less.
GUYON Does that mean you're going to have to
make that money up in the longer term or are you prepared to
actually change the law so that you don't actually have to do
that?
BILL Oh no the formula, there's no free lunch
here, the formula that's in the law won't change, we will leave it
as it is, and the way it works is if you don't pay in this year or
next year then you have to make higher payments later, but that's
all part of the automatic stabilisers of getting through a
recession. If you don't make a payment now then when the economy
picks up then you would be in a better position to do it.
GUYON We've been talking about what we can
afford, what are luxuries, what are sacrifices, a national cycle
wave, how much are you prepared to spend on that?
BILL Well that's a matter of discussion between
myself and the Prime Minister but what's fascinating there is just
how it's caught the imagination of so many people, so it's not
going to be a big expenditure item, it's not going to - the
national cycle wave is not going to happen in a hurry, but if you
see the examples that are in existence now they've been quite
successful. Look again it's a matter of keeping a balance, the
government wants New Zealand to remain aspirational, to be about
improving our performance, listing our profile in the world and
even through a recession there is room for initiatives that are
going to demonstrate that.
GUYON Sure but 50 million dollars was the back
of the envelope calculation, are you prepared to spend much more
than that on this project?
BILL Well we won't be spending 50 million
dollars on it this year or next year or the year after.
GUYON So it's years away this idea is it?
BILL Oh no it'll get started, I mean there's
any number of things that the government has undertaken to do, we
made a lot of undertakings in Opposition, we will be implementing
all of those, we'll be implementing a national cycle network but
it'll start smaller and as confidence builds and the economy
improves it can grow bigger.
GUYON But you said you wouldn't be spending 50
million on it within three years.
BILL Well the question was are we going to
spend 50 million this year - no, we'll get started.
GUYON Can I just ask you finally whether you
think we'll be out of this recession this year and quite
aggressively growing out of it by early next year?
BILL I wouldn't want to guess, I think one of
the features of this recession is that we're unlikely to
aggressively grow out of it, we won't have the opportunity coming
out of this recession to grow off the back of readily available
credit, this is a recovery that'll be based on exports and on
savings. New Zealanders have a pretty poor record on savings
although it's increasing significantly now, people are saving
money, that will help as we come out of the recovery, and growing
the export base is a lot harder than borrowing money to go and buy
flat screen TVs, so all the advice around the world is coming out
of this recovery will be relatively slow.
GUYON See that's quite a contrast to the Prime
Minister's view which is that we will aggressively come out of
this, I mean he seems a lot more optimistic, you seem a lot more
gloomy.
BILL Well look the Prime Minister has always
had a very positive view about New Zealand.
GUYON Is he wrong?
BILL Let's see, I certainly wouldn't want to
say he's wrong but he's setting a high hurdle here and it's our job
as a government to meet those expectations, that's a feature of
John Key's leadership, I mean he is saying to me we want the policy
settings that are going to get us aggressively out of here, and a
big focus there for the government is replacing the jobs that have
been lost, a slow recovery means it'll take a while to get
unemployment down, we want to do everything we can to get
unemployment down, that's driving the Prime Minister.
GUYON The Finance Minister and the Prime
Minister though, that's at the core of any government, should New
Zealanders be concerned that he has a very positive view about how
we're gonna come out of this and you have a very negative
one?
BILL No not at all, what we've got here is the
elements of a plan that's set the objectives high, the aspirations
high, to replace those jobs that are lost, to make New Zealand
distinctive come out of this recovery stronger and more competitive
than other countries, and the need for the government, for the
Cabinet to deliver the policy settings that are going to achieve
that and John Key's style of leadership within the Cabinet I think
is really lifting our sights.
GUYON Alright, let's see how it transpires, thank you very much for coming in and joining us on Q+A, Finance Minister Mr Bill English.
