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Bill English - Source: Close Up -
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BILL ENGLISH interviewed by GUYON ESPINER
GUYON Thank you Finance Minister for coming and joining us on the show this morning. When did you first realise that the government could no long afford to make the contributions to the Super Fund?
BILL ENGLISH - Finance Minister
I think when we found out that the early version of the
budget forecasts were significantly worse than the worst
possibilities from when we first came into government.
GUYON When was that, in February,
January?
BILL Oh no it would be getting into March probably, March into early April.
GUYON Why have you essentially made this decision?
BILL Oh simply because the depth and the force of the global recession has removed about $50 billion of GDP from New Zealand's output over the next four years, we don't get to tax that, that left us about 15 or 16 billion less tax than was expected back in the budget last year, so we're forced into making a trade off, which was to either complete the taxcuts, we put half them in place on the 1st of April, they followed on from taxcuts on 1st October under the last government.
GUYON Yeah I want to talk about taxcuts in a minute but what I'm asking you is why have you suspended the government contributions to the Super Fund?
BILL We've suspended them because the fund was set up to take government surpluses and invest them - there are no surpluses, and if we were to make contributions now we would have to fund them either by cutting back public services, or cutting back other income support entitlements, or we'd have to go to the market and borrow them, and that would be like a household that had a big mortgage, an overdraft, the car and the fridge on hire purchase - going off to the bank and saying we want to borrow money to invest in the share market.
GUYON Okay I've heard that argument from the government this week, I've been sent documents by a concerned Treasury official who describes this decision as a fraud. This official says that rather than saving us money we'll actually be worse off in the long term to the tune of about eight billion dollars by 2023. Let me take you through the maths which is quite simple, and I'm sure you will have seen this analysis. The government borrows at 4.4% now, that moves to 6% by 2013 and it stays there, but the after tax return on the Super Fund is 6.57%, so you're actually 3.3 billion dollars better off by 2023. The other point this official makes is that Super Fund is one of the largest taxpayers in New Zealand, and would in fact pay four and a half billion dollars in tax over that period, so you're actually eight billion dollars or more worse off by suspending the contributions to the Super Fund. Do you agree with that analysis.
BILL Ah, no I don't, as I've said New Zealand is already one of the most indebted countries in the developed world, and going out to borrow all of the contributions to invest in what you would have to say are unpredictable world equity markets, is something that has got a lot of risk in it. Secondly the baby boomers...
GUYON Even if the return is greater than the cost of borrowing, I mean surely that makes sense.
BILL Well we just don't quite know what those returns would be. As recently as a couple of years ago the Super Fund was making 14% return, in the last couple of years it's lost billions of dollars.
GUYON But that's the point isn't it Mr English, it's over the longer term, it's over the long term. Now it's your own Treasury who have done this modelling, they say that the long run average after tax is 6.57% return, now that's more than the cost of borrowing, surely that makes sense, you actually make money.
BILL Well try going to your bank, go in the door, say I've got a big mortgage, I've got an overdraft, I've got a lot of hire purchase, and now I want you to lend me a hundred thousand dollars to go and play around in world equity markets, I think they'll say no, and actually Guyon I don't think you'd lend your money to someone who said they were going to do that. Look saving by borrowing is like building up your savings with your credit card, it just doesn't make sense. The fund was always predicated on having surpluses to invest, actual money to save, that's how the legislation was set up, it envisaged - when we passed this legislation five or six years ago, it envisaged exactly this situation, that if there was some unexpected economic shock then the government would have the ability to suspend contributions. We've made that decision and when surpluses return we will resume contributions and I think what this debate shows is just how important it is that New Zealand gets back into surpluses, because surpluses give you choices, deficits stop you having choices.
GUYON Okay, let's look at another consequence of what you've done, because one of your big pre-election economic announcements was that you would move to have 40% of the New Zealand Super Fund actually invested in domestic New Zealand companies. Now if there's a 37 billion dollar hole by 2030 when you start withdrawing these funds, haven't you essentially robbed the New Zealand business community of what 15 billion dollars worth of investment that you promised was coming their way?
BILL Oh look that analysis is just ridiculous, there's no 37 billion dollar hole, the New Zealand Super Fund formula requires that if you suspend contributions then when you start again you have to make up the difference, that's available on the Treasury website, that analysis about 37 billion dollars is absolute nonsense.
GUYON Well it's not nonsense though that there will be a big hole when you start drawing down from this fund, and that when the baby boomers retire one in five New Zealanders will be of retirement age, how are we possibly going to afford to pay for their pensions?
BILL Guyon the analysis that says there'll be a big hole is absolute nonsense, it's simply wrong.
GUYON So how can it be that there isn't a hole if you're not paying in two billion dollars a year?
BILL Because when we get into surplus...
GUYON In ten years.
BILL Well let's see how long it takes. This discussion shows how important it is that we get into surplus as soon as we can, because it's not just the Super Fund where we'd like to make more expansive choices, it's also the growth of public services, it's also further investment in infrastructure over and above what we've got...
GUYON What you're telling us this morning that there is no problem, we can pay at 66% of the average wage for anyone 65 and over, we don't need to debate the entitlement age, we don't need to debate means testing, we don't need to debate rising taxes to actually pay for this, it's all going to be fine.
BILL Well look those are the settings, we can afford those settings, what is going to secure those entitlements best is a fast growing productive economy that is not burdened with a large amount of debt, and decisions we've made in the budget make sure that that debt doesn't get out of control, that our credit rating stays viable, that we continue with investment in productivity, enhancing infrastructure and skills, and further investment in the economy. That's the best thing for baby boomers. What's the worst thing for anyone retiring is the kind of thing we've got now, which is a recession that reduces our GDP, reduces average wages, and means a lower standard of living in the long run for anyone who's on superannuation.
GUYON So Australia has just moved in the future to a 67 age of pension entitlement, we don't need to have that debate in New Zealand?
BILL No we're not having that debate, the government made a commitment prior to the election, nothing has changed since then that reduces our capacity to meet that commitment.
GUYON Let's look at the big broken promise in the budget, the taxcuts, I mean your test for resuming the contributions to the Super Fund is when surpluses return, will you have the same test for your taxcuts.
BILL Well what we've said with the taxcuts is we'll resume them when economic conditions permit, certainly surpluses would help that. Unlike what the panellists said we actually do believe taxcuts are a good idea, and over the last eight months one and a half million New Zealanders have enjoyed the benefits of taxcuts on the average wage of about thirty dollars a week.
GUYON Sure, but can I ask you specifically, is one of the conditions of resuming the taxcuts programme, the return of surpluses?
BILL We haven't laid out those conditions, we've deferred these taxcuts until economic conditions permit.
GUYON Can I ask it another way. Would you be prepared to cut taxes by running deficits?
BILL Well as I've said we haven't laid out any of the conditions Guyon, we've been grappling trying to get on top of our debt, it's clear that taxcuts weren't consistent with achieving our debt objectives over the next few years.
GUYON You've cancelled rather than deferred these taxcuts though haven't you?
BILL No, we've deferred them, we think lower taxes are a good idea. We see an opportunity here coming out of this recession for New Zealand to grasp the opportunity to come out of it relatively stronger than other countries, and we want to leave our options open about how to achieve that. If we can for instance have an economy that recovers more quickly than Treasury's assumptions over an extended period of time, we'll have a lot more options, if it doesn't recover we won't have those options.
GUYON But these were more than just simply luxuries that we can't afford weren't they? I mean I take you back to the Speech from the Throne that your leader delivered on December 9: "This programme of tax reduction is a central part of the economic plan of my government because it believes in encouraging New Zealanders to get ahead under their own steam, and it views personal tax reductions as an essential step." I mean these were more than luxuries, these were an essential plank in your economic platform that you've abandoned surely.
BILL Well the circumstances have changed quite dramatically since that time. You may remember a discussion going back to I think August last year, it was controversial and we put forward a programme that had debt at 22% of GDP. By the time the Speech from the Throne was delivered I think we were looking at levels like 26 or 27% of GDP as a peak, the pre budget forecast put it at over 70% of GDP, more than double what we or any political party had ever contemplated, and we've been forced to make the tradeoffs that get that debt level down, and unfortunately that's meant not completing our commitment on taxcuts.
GUYON But where does this leave your stimulus package, I mean you were bragging a few months ago, but I think we were number three or four in the world in terms of stimulus based on a nine billion dollar figure. Now you've essentially lopped a third off your economic stimulus package haven't you?
BILL Well yeah it's smaller than it was, but by international standards still fairly significant, I mean in this budget that government spending will increase by three billion dollars in the bottom of a recession, we're increasing all income related entitlements, I think Working for Families stays flat, but there's been no reduction in entitlements, we've got an extensive investment in infrastructure, 7.5 billion over the next four years, the insulation plan which is just one element of that, and we're recruiting hundreds of people to the front lines of the public services. This is significant expenditure, it's all being financed by borrowing. We believe we've got the balance about right, protecting people from the sharp edge of recession in the shorter term, but we've got a plan to get on top of the debt so it doesn't become uncontrollable.
GUYON How easy was it to find the two billion dollars in savings that you achieved this budget?
BILL Well it was relatively easy because the last government left behind a lot of loose ends shall we say. They'd raised expectations way above what funding they had available, they'd also left some quite large commitments for future funding which we've just decided not to meet. So it was an easier part of the budget, we've achieved those savings but they are one off, what we've said to the leadership of the public services, we've now given ourselves some time to focus on the next three to five years rather than just one year, and look at how we're going to deliver better smarter public services. We've gotta make the same adjustments as every other household and business in the country.
GUYON Sure, one thing that stands out like a beacon of indulgence in the budget is 50 million dollars for a cycle way, was that really the best use you had of 50 million dollars?
BILL Well look people are always looking for the kind of idea that sparks enthusiasm and creates employment, and there's no doubt at all that the cycle way idea has sparked enthusiasm right across the country with a broad range of people, in much the same way as the insulation programme has, and both of them are job rich spending.
GUYON Last time we spoke you said you wouldn't be spending 50 million dollars on a cycle way, what did the Prime Minister say to change your mind?
BILL Well I certainly wouldn't be spending 50 million a year, the Prime Minister has promoted it vigorously, it's out there and it's up and running and we're right behind it.
GUYON But jokes aside I mean there's an opportunity cost here isn't there, you just lopped 54 million dollars off adult community education, that's a second chance for a lot of Kiwis who are ambitious for New Zealand. Wouldn't it have been better to keep that than some monument to your leader?
BILL Well look that reduction is aimed at hobby courses, so it's courses that are providing - you know they're providing an opportunity for some people, but we've got higher priorities which is to actually employ people as the cycle way spending will, and to spend money on the growing numbers of young people who are unemployed who are going to be looking for skills and further education and training. So this budget has been about reprioritising, it's got a lot of money focused on actually employing people, because unemployment is going to rise significantly over the next 12 months, and we've got further reprioritising that's we're going to need to do. I mean it is time after ten years of enough money to be able to do everything, like everyone else in New Zealand government has to ask the question, is this the best use of my money, is it the most effective, is it achieving the objectives we're all after.
GUYON When you signed the agreement for the ACT Party, one of the things you committed to was pay parity essentially with Australia by 2025, is there anything at all in this budget which even inches towards that goal?
BILL Well actually yes I believe there is. We have in my view a pretty good quality policy base in this budget, for instance our infrastructure spend is focused on those things which are going to lift our longer term productivity, so we've got the biggest school building programme the country's ever seen in this budget, over half a billion dollars, we've got the biggest transport investment that the country has ever seen, over a billion dollars a year on the next three years just on our roads, and there's public transport, the roll out of Broadband, that's going to be pretty strong focus. The other thing we've achieved is a positive up tick - a small one but a small positive tick on our credit rating which just brings us that bit closer to Australia for our international credibility on borrowing money and attracting investment, and hopefully lowering the cost of our debt somewhat. Those are small steps in the right direction.
GUYON Just quickly before I leave it, can you really commit this morning that you'll only spend $1.1 billion in each of the next two budgets?
BILL Yes we are going to do that.
GUYON I'll leave it there, thanks very
much for joining us this morning on Q+A - Finance Minister, Mr Bill
English.
Add a Comment:
Post new commentYady said on 2011-11-28 @ 09:41 NZDT: Report abusive post
the country is full of complacent morons who love to complain but dont get of there arse to vote.... cant beleive where this country is headed, where just like the yanks, maybe worse because we think we are better than them....shame shame shame..... who can blame us for moving to aussie... the nz government is for the nz rich list, they dont care about the poor..... shame shame shame..... and the media should be held accountable.... they done this... i want to hear the tea tapes!
Yady said on 2011-11-28 @ 09:35 NZDT: Report abusive post
those who didn't vote should be ashamed of themselves.... this country is full of moaning couch potatoes..... just what national needed... shame shame shame....
cheekychick said on 2011-11-27 @ 10:03 NZDT: Report abusive post
Michelle Boag calling Winston names is disgusting and offensive Jan
cheekychick said on 2011-11-27 @ 09:28 NZDT: Report abusive post
Winston Peters is needed in Parliament to keep them honest. Janice
Cally said on 2011-11-27 @ 09:18 NZDT: Report abusive post
This is a very sad day for NZ, the blighter future is now here. When I went to vote yesterday, there was a man sitting behind the person I got my voting papers from, he had a National badge on and told me to vote for National and I also heard him tell someone else. National should not be proud of the dirty way he won this!