Agenda: Prime Minister Helen Clark

Highlights

Prime Minister Says Treasury To Blame For Tax Cut Delays

Prime Minister Helen Clark is blaming Treasury for her refusal up till now to agree to tax cuts.

She claims she has not been able to agree to cuts because of inadequate fiscal forecasts from Treasury.

"I'd have liked to have done it earlier and I think all our cabinet and caucus would have but we've never had advice which made that possible," she said on TVOne's "Agenda" today.

Ms Clark said Treasury had f now forecast budget surpluses to be long-term and "structural" rather than just a "one off", meaning cabinet and caucus felt they could safely deliver tax cuts.

"We've got a lot of things to cover but it comes to a point where if your surplus is structural as has now been conceded then you can start to address the divided from a tax cut as well."

Government To Consider School Leaving Age

Prime Minister Helen Clark has said the Government could look at raising the school leaving age to 17.

On TVOne's "Agenda" today she said half of all New Zealanders in the workforce did not have the skills to function fully in a knowledge society.

"We look at that and think if we're trying to build the economy of the future our people need to be more skilled and one of the first places to address that is what's happening at the point of exit out of school, she said.

Prime Minister - Guy Fawkes Fireworks "Horrific"

Prime Minister Helen Clark is hinting at more restrictions on the sale of fireworks.

She said she found last night's Guy Fawkes festivities around her home in Mt Albert, Auckland "horrific".

Speaking on TVOne's Agenda, Ms Clark said the fireworks reminded her of war torn Afghanistan.

"Last night in my suburb I felt as if I was in downtown Kandahar, it was horrific".

"Well we said last year when we tightened the rules that it was you know high noon at the corral, that if people were going to carry on being absolutely ridiculous we would have to look at whether we went a further step, we're gonna have to look at the reports from this one".

Ms Clark said she would personally prefer to see fireworks in public displays because she was sick of stories involving animal abuse, human injury and fire.

"I personally think the best use of fireworks is in those incredible and beautiful public displays and I hate to hear of the stories of animals being terrorised, people badly injured from them, fires started, homes burnt down, it's horrific."

EPMU Fears Tax Cuts Could Jeopardise Public Spending

EPMU National Secretary Andrew Little says Union members are worried that Government intentions to give personal tax cuts may cause spending cut backs in other areas.

Speaking on TVOne's "Agenda", Mr Little said he had been speaking with union members who were voicing their concerns about financial repercussions in Government services.

"It is interesting when I get around and talk to our members and I have been in a series of meetings at the moment with our members and we talk about tax cuts, the big fear that a lot of our members have is that they don't want tax cuts to be seen as a trade off to many in schools, money in hospitals, money in those sorts of things".

On the same programme Prime Minister Helen Clark would not commit to any further expenditure particularly in health. This comes after comments from Finance Minister Michael Cullen at a business tax summit on Thursday that health expenditure could not continue to grow at its present rate.

She said there was always Now there's always a demand to spend more in health

"I know the pressures, but I also know that we've built up the level of investment hugely," she said.

"Over eight years we have built up very substantial levels of investment in those areas. We are looking for productivity gains as well. Those areas need to be continued to be invested of course but we have the scope with structural surpluses to also be addressing the personal tax issue."

"In my experience with Labour governments there's always significant spending in the social areas because we are highly motivated to have world class health and education systems and to make sure our families, our super annuitants, less fortunate in the community, do get support, so we have to address those areas, but if we've got a structural surplus we can do some other things besides."

RAWDON This week both Finance Minister Michael Cullen and Prime Minister Helen Clark have confirmed the government will move on income tax cuts next year. Dr Cullen has hinted those cuts will be targeted to lower income earners, he wants a public debate on how they can be introduced without producing more inequalities on society, but at the same time he said the current rate of growth in health spending could not continue without tax increases, so where does this leave the Labour government, still on the left or moving to the centre as a sort of national light. The Prime Minister's in our Auckland studio and she joins Guyon Espiner now.

GUYON ESPINER – TVNZ One News
Well Prime Minister you talked finally yesterday at the conference about delivering on personal income tax reductions, tell me what is the case for cutting personal income tax now?

HELEN CLARK – Prime Minister
Well the case is that clearly they need to be adjusted, I'd have liked o have done it earlier and I think all our cabinet and caucus would have but we've never had advice which made that possible. Given the amount of investment that had to go back into the social area I'm mindful that when we came in in 99 every single area of government service was under invested in and it's been a long slow haul back to credible levels of investment, but now that we've got advice that the surplus is structural not a one off and now that Treasury's conceded that the model that they’ve been using to forecast revenue hasn’t been getting it right…

GUYON But how credible is that, you’ve had eight years, every year you’ve come up and said well we've got more money than we thought and now you're blaming Treasury for saying that they got the forecast wrong.

HELEN But it might actually tell you that we do take a lot of notice of what Treasury says in its forecast.

GUYON But Treasury came in in 2005 when you came into government again and the briefing for incoming ministers and said you should cut taxes. Michael Cullen described that as an ideological burp.

HELEN Yes because they wanted to cut our spending on services, and come back to the overall approach I had in my speech yesterday, I said we have to as a Labour government be seen to be investing properly in health and education and families and superannuitants needs, we've got a lot of things to cover but it comes to a point where if your surplus is structural as has now been conceded then you can start to address the dividend from a tax cut as well. We are there, I'm pleased we're there.

GUYON Let's have some basics on this, I know you can't go into too much detail but surely you must be addressing this next year, these tax cuts must be addressed in the budget next year right?

HELEN Michael Cullen's been saying for months that he will be addressing this issue in next year's budget.

GUYON So we will get tax cuts in next year's budget.

HELEN Well I'm not gonna write the budget here as you wouldn’t expect me to, so there's no point going down a line of what's the rate, what's the threshold, what's the timing, what I have set out is that we intend to cut personal taxes, we can now see the way here we have advice from Treasury which is fundamentally different from what we've had before about the structural nature of the surpluses we can act on that.

GUYON Tell me roughly what the magnitude of this is, I know you can't go into too much detail but you’ve had a long time to think about this, what are we roughly talking about because you can't meaningfully discuss tax without numbers can you, I mean you're talking…

HELEN I'm not writing the budget here but what I'm confident of is that now that we have advice that these surpluses are structural they're not one offs, the economy's been growing strongly under Labour for eight years, we've grown at a faster rate than Australia, Britain, the States, Japan, the whole OECD on average, EU on average, we have a fundamentally strong economy, we've put a lot back into the basic service areas, of course they need continued investment but there's also scope to address the tax cut issue.

GUYON Who's going to benefit from this largely, is it going to be your modest and middle income earners because that is what you would expect from a Labour government, we wouldn’t expect a Labour government to be cutting taxes for the wealthy would we?

HELEN You wouldn’t expect National style tax cuts now, their concern is at the upper end of the income scale, our concern of course is what is fair to New Zealanders overall.

GUYON Will you engage at all in the idea of lifting a higher rate, like putting a top tax rate on extra rate?

HELEN Look I don’t even want to go there, I've made a strong statement that we will be addressing this issue next year as Michael Cullen has for some time. I've pointed out the reason for that is we can now see our way clear to doing that without borrowing for it and without jeopardising the spending in the basic services which is so important to most New Zealanders.

GUYON But surely it's time for the election, it's a political not an economic argument isn't it, I mean can you sit here this morning and deny that you have an eye on the election when you're doing this?

HELEN Well from the day after the last election any politician has an eye on the next election, it goes without saying that had there been scope to do this earlier it would have been done, but that was never the advice that we had that it could be done without either cutting services or borrowing. Now I think what people will give our government credit for is running strong and responsible budgets and we intend to keep doing that.

GUYON Tell me what the opportunity cost is here because I mean I've just been at a Labour Party Conference where they’ve been calling in their remits for greater social spending, I mean this is a fundamental shift for Labour isn't it, you're going to reduce revenue which must surely limit your options on those key things you’ve been talking about. Last time you came on this programme you talked about you would go back to the basics in the election on health and education. Surely this limits your choices there.

HELEN At some point you have to address the fact that the rates for people across the board haven’t been addressed now since we came into government, we have of course implemented substantial tax cuts which from 1 April next year will be running at about four billion per annum. Those have been in the Working for Families tax credits, they’ve been in the considerable tax breaks for business to help generate further growth in the economy and they’ve been for savings but at some point you have to address the overall rates.

GUYON Sure but does this mean you're not going to be spending new money in new programmes in health and education because of this revenue reduction?

HELEN Over eight years we've built up very substantial levels of investment in those areas, we are looking for productivity gains as well, now those areas need to continue to be invested in of course but we have the scope with structural surpluses to also be addressing the personal tax issue.

GUYON That is a signal though isn't it that we can't expect significant new spending in those social portfolios?

HELEN Well in my experience with Labour governments there's always significant spending in the social areas because we are highly motivated to have world class health and education systems and to make sure our families, our superannuitants, less fortunate in the community, do get support, so we have to address those areas, but if we've got a structural surplus we can do some other things besides.

GUYON Michael Cullen was making some pretty strong signals this week that health spending had to be reined in.

HELEN Well health spending has grown hugely under Labour. In nominal terms we've virtually doubled it from about six billion a year in the budget before we were elected to around 12 billion today. The British governments have faced a similar phenomenon they had a very rundown national health service, they’ve pumped the money in, they're now looking at saying we don’t need the rate of spending to grow as fast as it has. Now there's always more to spend on in health believe me I've been health minister I know the pressures, but I also know that we've built up the level of investment hugely.

GUYON Can I pick up on a couple of things that the panel talked about at the top of the programme and that is the reshuffle. You have pretty much given your members of the right of the Labour Party if you like some hospital passes there haven’t you, Phil Goff in Corrections?

HELEN I reject utterly the statements which have been made about factions in the Labour Party, there are not left and right factions in the cabinet or the caucus.

GUYON But you talked about abolishing them in your speech yesterday?

HELEN No I said I've banished factions, that’s been my job as leader of the Labour Party. When I became leader it was very factionalised, that is not the case today, and any analysis based on that frankly is just out of touch with reality.

GUYON Let's pick up on something else that happened at the conference, the scuffle outside, what do you think as Leader of the Labour Party what should happen to a member who's struck a protestor?

HELEN Well that’s a matter for the Police in the end. Obviously there was a highly provocative crowd outside and I saw one commentator this morning say well when union people are being called scabs they're going to be pretty upset about that, but nothing excuses anyone taking a swing at something, it was one person from an affiliate union and it shouldn’t overshadow what has been an incredibly successful conference, a very large conference and a conference I've had tremendous feedback from.

GUYON I respect the fact that obviously it's a matter for the Police and they're an independent entity but I'd ask you again as Leader of the Labour Party he's a member of the party.

HELEN Well I don’t know that he's leader of the party, I know that he's the partner of the secretary of an affiliate union and of course such incidents should not happen. I think it would have been better to leave a screaming and abusive crowd to its own devices.

GUYON Was there a bit of a bitter irony there with Trevor Mallard in the tent still after striking a member of parliament?

HELEN I don’t see the irony no.

GUYON That’s all from me for the moment but I'm sure the panel …

RAWDON Yeah thanks Guyon, I think we will want to pick up on various things in there, I don’t know, health spending?

VERNON SMALL – Dominion Post
Well the first thing I'd like to follow up is something that Guyon raised with the Prime Minister about tax cuts, I mean I know again you're not going to give us details but Michael Cullen's made it fairly clear he issued a challenge to business really to say how can I do it without increasing inequality. What's the touchstone for that, does it mean that everyone has to get roughly the same tax cut? What's the thinking?

HELEN Even to comment on that would get me drawn into design, but what were making is a clear statement of policy, the issue will be addressed next year, the time has come, the structural surplus is there to do it without damaging investment in areas which are very very important to every New Zealander, like health and education and support for a wide range of services, so we now will be focusing on the design.

VERNON But looking at that health question that Rawdon raised, is there nothing that a Labour government will not be able to do as a result of this, isn't there something screaming out to be done in health or education that this is going to deny you the ability to fund?

HELEN Well there are always things screaming out to be done, and if you trebled health expenditure you could do a lot more than just the doubling that we've done over the last eight budgets, but you need to be setting careful priorities and obviously you can't go on for more years without addressing the tax issue because we haven’t been able to address it across the board since we've been in government. We have as I said actually implemented substantial tax cuts for families, for business and for savers, but the time has come to address it for the broad range of people.

VERNON` Do you see that as being an ongoing programme cos that’s what John Key has talked about, not just a one off reduction but something phased in over several years is that your view?

HELEN That’s a question for the design of it which we are now very focused on.

VERNON Well if we're not gonna get further on that perhaps we can move on to something else, something which has been overlooked in your speech was the comment you made about adjusting the age required to be in formal education, are you seriously thinking of lifting the leaving age for school leavers?

HELEN I deliberately didn’t talk about the school leaving age because clearly there are also other education opportunities outside the school gate for people to be in training in. Of course we're very keen on the young apprenticeship scheme which we're starting to introduce in schools next year, and the Gateway Scheme which has introduced students to industry for a day a week in a lot of schools is important as well, but yes we are focused on whether there should be a higher age or a level of qualification as a criteria for exiting formal education and training.

VERNON But the key word is required isn't it?

HELEN Yes it is.

VERNON The second question I would ask you is what age are you looking at?

HELEN Well at the moment it's 16 and it went up from 15 in the 1990s, the question is whether it should be 17, how should that be applied, how would you enforce that age if people weren't at school but were outside in some form of training. I come back to the big point in the speech that the latest international survey suggests that half of all New Zealanders in the workforce do not have the skills now to function fully in a knowledge society. Now by the way by international standards that’s not a disgraceful figure but we look at that and think if we're trying to build the economy of the future our people need to be more skilled and one of the first places to address that is what's happening at the point of exit out of school.

RAWDON Now before we go too far away from tax cuts I just want to bring Colin in here.

COLIN ESPINER – The Press
Okay just a couple of questions Prime Minister, I'm interested you say that this advice from Treasury has been fundamentally different this time round and you’ve always been listening to Treasury advice on their forecasts. Were you not getting sceptical when Treasury basically handed down advice over eight budgets where there were some record surpluses and kept saying no no these are one off, I mean eight one offs.

HELEN Incredibly sceptical but of course they are our main advisors on what's going to happen in the economy and what the tax flow will be from that. They have continually underestimated the strength of the economy, it's growing at a fast rate than they’ve predicted, but also even within that their model has not accurately predicted the tax flows. Now it's got to the point as I said yesterday that surpluses would normally be regarded as a blessing but they’ve almost come to be regarded as a curse because we've learnt so far into financial years that things were going better than we'd ever been told, but we were left looking like we were hoarding a surplus for the fun of it rather than being able to make more strategic decisions at an earlier stage.

COLIN But does this mean that perhaps Treasury needs to readdress its models, I mean you're basically saying that they have been making some fundamental errors which must have made it very difficult for you to plan as much as anything.

HELEN It's made it incredibly difficult. When we were looking at what policy we'd take into the 2005 election again we didn’t see on the basis of the advice we were getting that there was scope for addressing the tax issue across the board without running seriously into at the very least cash deficits, so we opted for the enhancement to Working for Families which has been tremendously good for families but we couldn’t address the issue overall. Well to cut a long story short Treasury is now revising its models, particularly looking at the model and how it was predicting the tax flows because that hasn’t been accurate.

COLIN Can I also just ask - you're now promising tax cuts next year, National's promising tax cuts next year, does this to some extent neutralise tax cuts as an election issue?

HELEN I think National has been a one trick pony on the tax cut issue, it's really been the only policy, they’ve thumped it to death, they thumped it to death through the last election campaign, they have this pretence that really they're no different from Labour in any other area which is clearly rubbish. I set out the areas of differentiation yesterday if you want American style healthcare, Australian style industrial relations, more money from private schools rather than public, more privatisation overall, the more dependent foreign policy not independent, yeah vote for them, but I don’t think that’s what people want.

COLIN But are you going to get into a bidding war with National on tax?

HELEN I think you'll find that Labour's approach will be a balanced approach, we will address the tax issue but we're also running on a very strong record of investing in the basic services that every Kiwi cares about. I don’t think they can.

RAWDON What about the lolly scramble perspective of this, this is being announced now, we're not sure of when it's gonna happen, we're not sure of how much is gonna be involved, we're not quite sure of exactly where it's gonna be targeted, we've been told it's across the board, is it unfair of us to look at this as a sort of lolly scramble reaction rather than a well thought out policy approach?

HELEN Yes it should because this issue is one that I personally and the whole cabinet in government would like to have addressed some time ago. Now we've got the advice that makes that possible we can do it and we will do it.

GUYON Can I just pick up on something that Colin mentioned before and that is, I mean is this it, is this the king hit, I mean there's surely an opportunity cost here that doesn’t allow you to do things in say health and education, I mean is this going to be the major focus of the election year?

HELEN I've set out where I think the real differentiation is. You’ve got the National Party already out there with privatising, making it clear that they favour the private sector in areas like health and education.

GUYON But that’s the come back though isn't it?

HELEN I'm looking to what they are promising, I'm looking at the Australian style of industrial relations, I'm looking at the American style healthcare, there's fundamental differences here.

GUYON Can I just ask you simply then whether you do expect to have new initiatives and new programmes and new spending in heath and education whilst still delivering tax cuts?

HELEN Of course I do, I talked about one area yesterday that we have to be looking very very seriously at. The British government has just announced a vaccine going out to all 12 and 13 year old girls which could prevent 70% of cervical cancer. Now I need urgent advice on that, the advice on the cost of it, on whether we've got the competency now to roll out such a programme because in the end our people expect world class services, they expect to be getting what people in other first world countries are getting in these areas.

RAWDON` Okay we've gotta leave it there, very quick question. Fireworks are a hot topic, excuse the pun at the moment, should they be banned?

HELEN Last night in my suburb I felt as if I was in downtown Canada it was horrific.

RAWDON So you would like to see the end of them?

HELEN Well we said last year when we tightened the rules that it was you know high noon at the corral, that if people were going to carry on being absolutely ridiculous we would have to look at whether we went a further step, we're gonna have to look at the reports from this one. I personally think the best use of fireworks is in those incredible and beautiful public displays and I hate to hear of the stories of animals being terrorised, people badly injured from them, fires started, homes burnt down, it's horrific.

RAWDON Okay thank you very much for giving up your time this morning Prime Minister.

ENDS

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