Press Release – The Nation
Duncan There’s a grim warning this week from the Reserve Bank in its annual Financial Stability Report. The bank warns that any further deterioration in the global economy could see the government facing more financial pressures. The bank says that because …‘The Nation’ Bill English Interviewed by Duncan Garner
Duncan There’s a grim warning this week from the Reserve Bank in its annual Financial Stability Report. The bank warns that any further deterioration in the global economy could see the government facing more financial pressures. The bank says that because our fiscal position deteriorated after the Canterbury earthquakes the government could face increased funding cost on its borrowing and might even see a downturn in export incomes and that warning comes with growing evidence that poverty in New Zealand is increasing. In an in depth interview with Finance Minister Bill English I talked to him about the Eurozone crisis and asked him how serious it is, and the likely impact on New Zealand as he arrives at APEC in Hawaii this weekend.
Bill English – Finance Minister Well it’s potentially serious, Europe have struggled along now for a number of months and I think we should get used to that. I think it underlines the need for some strong stable government here, because one of the Europe’s problems is getting some strong stable government, and we certainly need that here. The government has a track record for being able to manage unexpected events. There’s a couple of ways that this could affect us economically, one with the banking markets closing down, but our banks have been through that in 2008, they’re stronger no, they’re in reasonably condition, better condition to handle it, and secondly through export slowdown. But if there is an export slowdown that may well be offset by lower New Zealand dollar. So I think we’re in reasonable position to handle the risks.
Duncan Minister what is the contingency plan, because if you look at what Alan Bollard said just this week, this sharp slowdown in emerging economies will reduce the growth prospects for both Australia and New Zealand. What’s your contingency plan? Do you cut spending?
Bill Well I think the first one is the contingencies around financial stability and we’ve spent a lot of time on that in the last three years to make sure our banking system’s in good shape to handle any pressure there, and I think with respect to economic growth the first option is simply to get a very strong focus on those factors that are going to assist us through economic growth, with better economic growth and maintain credibility. So that’s sticking to the track back to surplus, making sure government expenditure is well under control. Keep doing as much as we can to assist businesses whose confidence will wax and wane from month to month if this kind of thing rolls on, and they’ll need all the help they can get.
Duncan And do you let the deficit blow out more? I mean you’ve been prepared to do that in the last three years because it’s in your terms you know protecting the vulnerable. Are you willing to borrow more and let the deficit blow out, or have you had your day doing that?
Bill Well I think we’ve pretty much had our day doing that. Within the reasonable range of risk that we can see we’re determined to get back to surplus in 2014/15.
Duncan So what is the worst case scenario, we’ve seen in prefu they’ve talked about it. They talked about it with the report out of Bollard on Thursday. What’s your worst case scenario?
Bill Well I guess the worst case scenario would be some kind of financial catastrophe, now that’s extreme circumstance of course we all be rethinking how we run our businesses and organisations.
Duncan Are you planning for it though, I mean are you planning for that?
Bill No we’re not planning specifically for a meltdown, with the exception that around the banking system there has been a lot of work done to make sure that the effect of any financial instability can be dealt with.
Duncan Well you must have some sort of contingency plan or thinking about it, because in 2008 we sat here talking about this sort of thing, people were spending and offering all sorts of promises and the recession went bang. I mean there are dark clouds gathering, we are being warned. What is your plan?
Bill As I say we’ve got a track record of managing these kind of unexpected events pretty well, and I think you could expect more of the same from the government, that is a willingness to protect the vulnerable. I think that’s quite important.
Duncan But you said you wouldn’t borrow more, you said you wouldn’t borrow more. Would you be willing to?
Bill Well of course in – look who knows what …
Duncan In extreme circumstances you would?
Bill In extreme circumstances some kind of catastrophe you could – that’s of course one of the options, but we are determined to stick to the track to surplus, and within the reasonable range of likely things that could happen we are sticking to that plan
Duncan If we were short of money, and you needed more money would further asset sales be an option?
Bill We certainly haven’t considered that at any stage.
Duncan Not in that next three years?
Bill No we haven’t and I think it does show one of the benefits of the proposals we’re making, two or three percent of New Zealand’s total assets, 51% government support, government ownership. But it does give us some cash to be able to invest in schools and hospitals and prisons without having to go and borrow in these markets, which as you say are in more turmoil every day.
Duncan And both you and the Prime Minister have said this week that future assets sales are for another day but you haven’t ruled them out post 2014, if you’re lucky enough to govern I suppose post then. What sort of assets are you talking about?
Bill We’re not talking about any particular assets. What we’ve talked about is the programme that we have put in front of the public very transparently which will enable us …
Duncan You’re ruling out other asset sales, like future asset sales past this programme are you?
Bill Well I think we’re getting way ahead of ourselves, we actually haven’t got a mandate for any asset sales today, we’ve got an election to get through. If we win that election then we could kick off a process…
Duncan You’ve got the Australian Bank already in Treasury preparing these for sale, so you’re clearly confident that you’ll get the mandate?
Bill We’re doing what actually a government will benefit from anyway, and that is having a good hard look at those assets to make sure that they are doing the best possible job, because the government will be an ongoing owner of 51% if they’re in good shape.
Duncan The Prime Minister said this week to me, if this process goes well then we’ll cross that bridge when we come to it, i.e. look at other asset sales. Is that your intention too. If it goes very well you’d look at others to go in the block?
Bill Look future governments will make their decisions about what they want to do. We have put a programme in front of New Zealanders now. We do not have a mandate to sell assets until or unless we are re-elected.
Duncan But you’re not ruling out seeking a future mandate for other assets?
Bill We’re not looking, we’re not seeking a mandate for anything beyond what has been put to the public.
Duncan I just want to change tack here and look at this week there’s been a lot of focus on the underclass, poverty, people struggling in New Zealand. What is poverty?
Bill Oh poverty I think is living on a very low income for a long time. Most people can handle it for a short time and a lot of people do, you know students live on almost nothing for a year or two. Families who lose their jobs may be able to live on the benefit for a few months, but when it’s an extended period I think that’s real poverty, it’s a measurable life.
Duncan And it exists in New Zealand do you think?
Bill Oh there’s people living miserable lives yes.
Duncan Do you think you’ve closed the income gap?
Bill I think we’ve created a better sense of opportunity and I think that’s the key to this.
Duncan What about my question though, do you think you’ve closed the income gap if you look at your last three years?
Bill I think it’s roughly the same.
Duncan Does that disappoint you?
Bill Does it disappoint us? Well we’re setting out to create opportunity, we’re not setting out…
Duncan Is it your aim to make poor people wealthier?
Bill It’s our aim to provide them with opportunity. You can explicitly close the income gap in the short term if you just give more money to people on low incomes. Our opponents are proposing to do that. I don’t think anyone believes that’s the way out of poverty.
Duncan Is it a failure with your admission today that it’s about the same?
Bill No it’s not a failure because we’re focusing on the things that help provide the opportunities, national standards so every kid gets decent education. Welfare reform so people aren’t trapped there for years on end, and a growing economy that means that people who are on benefit have the hope of getting a job.
Duncan I want you to look – we’ve been out in Sandringham in Auckland and spoken to a Samoan Minister about his community. Have a listen to what he has to say about the income gap.
“I’m always a believer that there was three classes here in New Zealand. You have the rich, the middle class and the poor, but now I think we’ve got the richer who are very rich, I think the middle class have either – the top have gone up with the rich, and the rest have come down, and I think right now I think we’ve created another class just below the poor, you know it’s almost like the untouchable kind of thing here.”
Duncan That would indicate wouldn’t it on an anecdotal basis that the underclass perhaps has grown over the last few years?
Bill Well have had a major recession, so there are people who lost jobs and went on benefits.
Duncan Do you think it’s got bigger?
Bill Well if you look at the absolute numbers there’s more people on a benefit now because of the recession, but the number has dropped since the beginning of the year. So it’s turning around. We’ve made sure right through the recession, and actually been criticised for it that benefit levels have continued to keep up with the cost of living largely maintained Working for Families, national superannuitants get about $140 a fortnight for a married couple more than two years ago. So at the bottom end we’ve made sure people are holding their own. The important thing is the opportunity to move out of that situation.
Duncan I want to get back to our Samoan Minister shortly, but you say the important thing is opportunity, but with your admission that things are about the same, opportunity hasn’t appeared to have trickled down to those people does it?
Bill Well opportunities are there and a lot of people are taking them. Every week 2000 people come off the dole, they’re taking opportunities in an economy that is growing moderately and creating jobs.
Duncan I want you to have another look at this, because you talked about cost of living, Again listen to our Samoan Minister who talks about this.
“But the vegetables, the things that they want you to eat, the basic food for health is out of reach with many families, and that’s the problem. You know you try to implement the programmes, people can’t afford it. So for a lot of them can’t even afford it because of the low wages that they’re getting, and the benefits have been cut in a lot of families, and that doesn’t help with the problem at all.
So in terms of the food people are going for quantity over quality?
That’s right you know I know of families just to save a lot of food will probably buy a tin of fish and put it in the pot, water, plenty of water, some rice in it, and if you’ve got a couple of carrots or something to put in there, stir it around, make it big so you can feed a family of 10.”
Duncan You see Gareth Morgan would seem to back this sort of thing up too. He wrote this week that the economic reality is that the real wages for lower skilled people have fallen since financial deregulation and globalisation the trickle-down theory has been an abject failure for them, people that are represented by a minister like that? Do you accept it?
Bill Well I accept that there’s people finding it pretty tough, and we have made sure we support them as much as possible through a recession, borrowed a lot of money to do that. I think most New Zealanders agree that the instincts of the John Key led government around that have been the right kind of instincts. But alongside that …
Duncan It hasn’t taken them out of poverty has it, I mean three years ago New Zealanders saw this new Prime Minister, this new party, and he was talking about the underclass, what I’m trying to get from you Minister is you’ve said things have stayed the same. Anecdotally if you look at what they’re saying here – and I went up to the Mangere Budgeting Service this week who are funded for 300 people and saw 3000 in the last 12 months. Anecdotally it would appear on the ground that the gap’s wider and that there’s more people in that what the Prime Minister called the underclass, do you accept that?
Bill I accept that it’s been pretty through a recession. We can argue the toss about what the numbers show from all the analysis I’ve seen it’s about the same, and that’s not a bad result actually out of a recession, when you see so much damage being done in other countries who haven’t dealt with it that well. The key thing here is the opportunity to get your kids educated, to break out of the welfare trap, and to get a job and that’s what we are focused on and New Zealand’s in a better position than many, that over the next two or three years more people who are living on low incomes and struggling on it will have the opportunity for pay rises and for better jobs.
Duncan Well if you look at take home pay and let’s quickly look at this before we end the interview. Someone on $30,000 a year after two rounds of National taxcuts do you know how much extra they’ve taken home per week after your two rounds of taxcuts on $30,000?
Bill Oh it be around 10 to 15 dollars and that’s been offset to some extent by the increase in GST. So a lot of those people are in about the same position.
Duncan And on $150,000 a year it’s $151 dollars meaning the income gap – you’re right, you’re pretty close it’s $16 a week. So it’s a 135 dollar difference. I mean just on take home pay alone your government’s responsible for widening the income gap of take home pay.
Bill When we did the tax package we published the full analysis of the impact on the income distribution which showed that by and large people were in about the same position.
Duncan So if you’re on 150 grand to 20 grand the gap’s $135 difference in take home pay after your two rounds of tax cuts.
Bill Yeah but you’re only looking at part of the picture.
Duncan I’m looking at the significant part of it though.
Bill Well no you’re just picking one part of the picture. There’s been a GST increase, there’s been a drop in interest rates for all those households who are saving, and in fact the most recent analysis from Treasury shows that the top 10% are the one group whose income has actually gone down, and there’s also the changed to property tax. We’re taking eight or nine hundred million dollars this year out of the property sector. That’s not coming from people at the bottom end, that’s coming from people at the top end.
Duncan I just want to finish were we began just finally. Can anybody see any sort of sun and warmth and wealth on the horizon if you like given that you’re about to head off to APEC and you know that the talk is gonna be pretty grim for a few months, if not a year or so?
Bill I think New Zealanders expectations are realistic and they’ve proven to be very resilient and I think they’ve understood pretty well a direction which is about getting the incentives right. That’s what’s driven the changes …
Duncan is it batten down the hatches again for New Zealand families?
Bill Well they’ve battened down the hatches, you’ve just gotta talk to the retailers in any street in our country, and they’ll tell you some of them are doing okay, some of them are doing pretty poorly. total spending growth is about 1%, credit growth is about zero. So families have battened down, that’s been the adjustment that the country has needed.
Duncan Should they expect another global recession coming at them?
Bill Well compared to any other country…
Duncan Global recession? Global recession?
Bill Who knows we’re not expecting to be in recession. New Zealanders had a pretty moderate adjustment for what has been quite severe change in economic circumstances, and that is that the stable credible government making sensible on balance decisions. They can expect more of that whatever the world throws at us.
Duncan Alright, Bill English, thank you for joining us on The Nation today. Cheers.