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Q+A: Jessica Mutch interviews Bill English on inequality

Published: 1:26PM Sunday July 14, 2013 Source: Q+A

JESSICA MUTCH Bill English, thank you very much for your time this morning.

BILL ENGLISH Good morning.

JESSICA Good morning. So we just heard from Professor Wade there on just how important inequality is. The Economist said it's one of our biggest political and also financial challenges of our time. What are you doing to shorten that inequality gap?

BILL Well, look, in the first place, it's simply not correct to say that New Zealand has a rapidly opening gap between the rich and the poor. There was quite a big shift in the late '80s, early '90s. Since then, there's been a gradual rise and in fact in the last six or eight years, a flattening out of the gap between the rich and the poor. Secondly, what we're doing about it is to try and get at the causes of some of these things, and Professor Wade made exactly the right point about a lot of the way laws are written has had an impact on the income distribution. So if you take housing, for instance, our councils write planning laws that tend to favour existing homeowners as against people who want to get into the house market. So we have very high levels of housing unaffordability in New Zealand. That's difficult for middle- and low-income households to get the benefits of homeownership. We're trying to change the rules so that we can get more supply of housing and less of the kind of peaks in house prices that favour the better-off. The same in education: public education promises every New Zealand citizen that they'll get the educational competence to succeed in life, and for those who start with a disadvantage, give them a ladder to opportunity. Now, the whole debate-

JESSICA I want to go back to that point that you made about the income, because in a speech this week, you talked about how middle- and low-income earners, they need that tax wealth redistributed, and basically more than 50% of New Zealanders are getting some kind of top-up from the government, whether it's paid parental leave or Working for Families or accommodation supplements. Do you think it's right that half of New Zealanders need that support?

BILL Well, it's actually been a deliberate policy in New Zealand to have more universal and less targeted assistance. So every person over 65 gets national Super. We have everyone who goes to university can get an interest-free student loan.

JESSICA I'm talking about Working for Families and paid parental leave and things like that, though. Should low- and especially middle-income New Zealanders really even need this, or is this about a wage issue?

BILL Well, you know, in theory it would be desirable if people didn't need it. But bear in mind there's been a consensus over the last 10 years that, say, Working for Families should apply, you know, right up the income scale to households with four or five kids on $60,000 or $80,000 a year. So New Zealand has taken a path that is a bit less targeted and a bit more broader-based, and I think the theory behind that was that it would mean more middle-income people actually support income-support systems.

JESSICA Isn't the government effectively, though, just subsiding employers?

BILL No, I wouldn't see it that way. I mean, you can- What's the response to that? Is it to say, "OK, because we're topping up people's income, let's take that away and that'll force employers to put wages up." That's not what we would see happen.

JESSICA Professor Wade mentioned in his interview saying that basically it's about the top 1% creating laws for the top 1%. Do you think that the rich in New Zealand have too much political influence?

BILL Well, actually, I found his assertion there a bit objectionable, actually. Whatever it applies in other countries, in New Zealand I don't think there's any politicians who take that approach, and one reason is because it's simply not practical. You cannot get in MMP 51% of the vote, which is what you need to be a government in New Zealand, if you're aiming at the top 1% only.

JESSICA But New Zealand has always prided itself on being an egalitarian society. Have we lost that, do you think?

BILL No, I don't think so. I'm not near as pessimistic about that as Robert Wade or your earlier author, Geoff (correction: he is actually referring to Max Rashbrooke) Rashbrooke. I mean, look, they're drawing attention to issues that matter, of course, but-

JESSICA Let's look at a practical example, though, we've got. The Food in Schools programme that you announced a few weeks ago - $1.9 million for that. If you compare that to the annual salary of the CEO of Mighty River Power, it's about the same - $1.7 million. Does that seem fair and equal to you?

BILL Well, I think it's a bit odd to compare those two things. You can argue about whether Mighty River Power chief executive's getting paid too much as against the engineer or whatever-

JESSICA Is he getting paid too much in your opinion?

BILL Well, he's getting paid what the market seems to need to pay. I mean, when people get worried about their electricity prices going up, they would want to know that there's someone in charge of the electricity system or the parts of it who know what they're doing and can provide a competitive product at a lower price, and an incompetent chief executive in Mighty River Power and every other power company would see people paying higher electricity prices, and then we'd all be complaining about that.

JESSICA This is a matter of wages, though, isn't it? When you break it down, do we need to pay New Zealanders more so they don't need that help from the government?

BILL Yes, we do, and of course the trick is how do we get to do that? Everyone would like to see incomes higher, particularly in low- and middle-income households. A nation is going to be a more cohesive nation if people don't feel pressure. Over the last-

JESSICA Because that's an interesting point, isn't it? You talk about low- and middle-income New Zealanders. Shouldn't it be just low-income New Zealanders that the government needs to target? Shouldn't middle-income New Zealanders be pretty much OK by themselves?

BILL Well, they do actually sustain themselves pretty well. The bulk of government assistance goes to the hundreds of thousands of New Zealanders who have almost no other income. I mean, 330,000 on benefit, 600,000 on national Super. That's getting up to, you know, between 900,000 and a million New Zealanders who are paid sufficient each week - just sufficient - that they can actually live on in the absence of no other income. 900,000 people. So the bulk of the assistance goes into that end. The key figure, though, is working on those factors that are going to assist people, support them to get out of the situation of persistent low income, because that's where the real disadvantage lies.

JESSICA Because one of the issues that low-income families have, of course - if they can't sustain themselves at the moment, how are they going to save for retirement? This was one of the warnings from Treasury this week. Will you have a look at means-testing for Super? Is that something that's on the agenda at the moment?

BILL No, we're not considering that, but with respect to lower-income-

JESSICA Should you be?

BILL Well, look, some people say we should. We made commitments about it, and we're not looking at it. With respect to lower-income-

JESSICA Isn't that just delaying the problem, though, for someone else to deal with?

BILL Well, we've made our position clear on that. Low- and middle-income families, though, have shown more of a capacity to save than expected. When Kiwisaver was set up by the previous Labour government, there was an expectation that only higher-income people would be able to afford to go into it. One of the surprising impacts of Kiwisaver has been people entering it right across the income scale. The thing about low income that matters is the persistence of low income. That's where you get the real deprivation, which both of your earlier interviewees are right to draw attention to, and that's where we're focusing our efforts on - welfare dependency, on educating every child well as we possibly can in our education- in our schools with National Standards-

JESSICA And housing is another thing that your government is focusing on as well, and that's what I want to talk about. One of the things that's been suggested by the Reserve Bank governor is basically trying to restrict the four big banks on these low-deposit mortgages. Is the Reserve Bank governor trying to push back on that?

BILL He is looking at his particular trade-offs around raising interest rates and how to contain the growth of borrowing. He could choose-

JESSICA Because behind the scenes, he's not happy about this, is he?

BILL Well, he's trying to deal with a situation where the economy is picking up, the housing market is picking up faster. Probably raising interest rates sooner than you absolutely need to would make it difficult for our exporters through a high exchange rate. So he's trying to deal with credit growth, we're trying to deal with the supply of housing, so we're working on both sides of the equation.

JESSICA And you've been pushing for having an exemption for first-home buyers. Is that going to happen?

BILL Well, the Reserve Bank governor has been consulting, including with the government. In the end, he will make his decisions.

JESSICA Has he threatened to announce this, though, and have no exemptions? Has that been what's been going on behind the scenes?

BILL Well, look, the Reserve Bank governor doesn't threaten anybody. He consults with people and then made his own decisions. Our view-

JESSICA But is that what he's been saying?

BILL Look, you'll have to wait and see what he says.

JESSICA That sounds like a yes.

BILL Our position- Our focus is much more strongly on the supply side of housing, enabling more houses to come to the market when there's more people looking for those houses, and also reforming our social housing system, which has historically been quite inefficient. It's trapped a lot of people in persistent low incomes. We've got broad support for significant change in that area as well.

JESSICA And that's a nice place to leave it. Thank you very much for your time this morning, Finance Minister Bill English.

BILL Thank you.

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