'The Nation'

Bill English
Interviewed By Duncan Garner

DUNCAN Finance Minister Bill English has just made a keynote address to the National Party Conference, where he's focused on National's economic growth agenda and what he's calling Building the Recovery. Mr English says it will take more than just the two budgets he's delivered so far to get the economy going again and out of trouble. The Finance Minister now joins me live from the National Party Conference at Sky City. Good morning Mr English.

Minister there's still widespread evidence that businesses are finding it hard to borrow and hard to source money and find money. Is there a concern do you think that New Zealand businesses are still facing a credit squeeze?

BILL ENGLISH – Finance Minister
Oh yes that is a concern, the business credit's actually been shrinking over the last 12 months. We're all in a world now that is pretty hostile about debt, and businesses that have had too much debt are under pressure from the banks. I think what we're finding across the countries, it tends to be small and medium businesses, the larger businesses have restructured themselves in a way that makes them relatively lower risk for lending. So it is a concern that the banks are running pretty tight on business credit and that is going to constrain the capacity of the economy to grow in the short term.

DUNCAN I mean what can you do about that, I mean what sort of solution can you come up with so money is available so firms can grow, because growth is your focus at this conference isn't it?

BILL Yes it is. Well look there isn't an easy solution, we're all going to have to get used to a world where debt is harder to get, and possibly is going to cost more. I don’t think it's going to be ever as easy as it was in the last ten years. So what is going to fix it over time is that businesses restructure themselves so they're less leveraged and that will make them a better lending prospect, and on the other hand we need New Zealanders lifting their savings rates, as they are now, so there's a bigger pool of investment available for New Zealand businesses.

DUNCAN I mean John Key talked about this a couple of weeks ago at the Auckland Business School here at the university. He said this is the biggest issue facing the government over the next 18 months, the ability for businesses to find money. Is there anything that the government has in its toolbox if you like, that can solve or get some way to solving the issue?

BILL Well there's a whole range of things we need to do right to improve the situation. The government needs to manage its own finances well, so that there isn't unnecessary pressure on interest rates, because businesses have been dealing with rising interest rates, we don’t want to make that harder. We've gotta get our financial market regulations sorted out, and we're doing that actually in a hurry so that we can rebuild investor confidence. We need to see a few more entrants coming into the market, or able to lend. So it's good to see some of the local institutions such as KiwiBank, the Southland Building Society, Taranaki Savings Bank, proposals for a new South Island bank. They're all going to be needed in order to free up the supply of credit, because I think relying on the large Australian banks to loosen up could be a bit of a long wait.

DUNCAN I want to focus on that. Just how long do you think it will be till some of those major banks do start expanding their lending, because that is the issue isn't it? It will affect economic growth, without the lending you won't get the growth will you?

BILL That’s right, and look I think it's one of the reasons that this recovery is going to take a bit longer, is because in the past recoveries from recession are often driven by faster availability of credit. To be fair to the Aussie banks, they are out there borrowing in world financial markets which are pretty hostile about short term debt, and lending it to banks, anything that’s got a bank in its name they're looking at pretty carefully. So they are not – for them it hasn’t got any easier to borrow the money that they need to lend to our businesses. So we're a bit caught by that international situation. So we need to focus on the things that we can do here.

DUNCAN That could mean this dip could go on for a lot further then, because if these major banks aren't prepared to lend, then we face more trouble don’t we?

BILL Well it's going to be a bit of a squeeze for a while, and I think businesses that are heavily dependent on debt, are going to need to adjust the way they run the business, so they're less dependent on it. You know I'd like to be able to say someone could just turn the tap on again for credit, but it isn't going to be that simple. That is one of the unique features of this recession, it's driven to a large extent, as a financial system recession, it's this new allergy to debt for the next five or ten years, and whether we're a household or governments or businesses, we have to adapt to that.

DUNCAN I just want to change tack for a minute and just have a look at the Crafer Farms issue, which of course has been in the news a lot over the past few weeks. Before you came on we had Federated Farmers President Don Nicolson on the programme, and he said that he himself is opposed to the Chinese buyer to the Crafer Farms because, for the very simple reason that New Zealand farmers are not able to buy land in China, we can only lease it there. So he's saying unless there's some kind of reciprocal agreement where New Zealand farmers can buy land in China, then he's saying put the gates up, do not let them in. What do you think of that position?

BILL Well look in China no one owns the land, or the government owns it whatever, they don’t have our system. The important thing here is that the Crafer Farms will be put through a process that was put together by the last government, and I think people will recall that in the last government New Zealand First had a pretty strong aversion to overseas investment. They rewrote the Overseas Investment Act, there's more tests in there around sensitive land, there's a business test, there's a value to New Zealand test, economic value to New Zealand, and those are the tests that will apply.

DUNCAN Do you disagree with that position though from Don Nicolson that without some kind of reciprocal agreement that we should ban them, we should stop the Chinese investing here? It would seem quite a dangerous precedent wouldn’t it?

BILL Look that’s not a road the government's going to go down. We have a range of foreign investment coming into New Zealand from a range of countries, they have different sorts of ownership regimes, they have different rules for handling New Zealand investment going in there. We need to make sure we get the right balance between access to foreign investment, because we're a country that doesn’t save enough. We need other people's capital in order to create jobs and have high incomes, but we need to protect the special features that New Zealanders value about their land. Look I might say this. This issue has come up, it comes up quite regularly over the whole time I've been involved in politics, and one lesson I've drawn from it is that with respect to farming, the family farming model is the enduring model in New Zealand, whether it's corporates or syndicates, or foreign investors, they come in when we look cheap, they find out that if you don’t live it and love it you can't make any money out of it. They don’t have the commitment and generally they melt away again.

DUNCAN I just want to stay with property, and farming a property, now you’ve brought it up. You’ve said recently in an interview with Bernard Hickey around the option of property taxes, further property taxes, that the government is open minded about propositions that are going to further try and rebalance the economy. It's important for people, this is your words, to understand that we don’t regard the job as done yet. Are you saying – I'd quite like to get a clear answer from you Mr English – that there is potentially more property taxes to come, or some introduction of some taxes around property in the months or years to come?

BILL Oh look I wouldn’t isolate property specifically. When we went through the last budget we found it's actually quite difficult to tax one particular form of investment, i.e. property, differently from other forms of investment. It's quite hard to target it. What we are interested in though is dealing with the imbalance of savings and debt and our economy, it's one reason we owe 170 billion to foreign lenders, is because we have to borrow off them to make up for our own lack of savings.

DUNCAN So can you rule it out though Mr English, I mean can you rule out looking at property taxes in the future, because your comments to Bernard Hickey were quite direct?

BILL Oh look we're not considering any particular extra tax on property, and one of the reasons is because as I said we don’t want to isolate one particular asset. Our policy will be looking at what further moves we can take to rebalance our savings.

DUNCAN What further moves could you use? What further measures could you bring in?

BILL Oh well look there's any number of suggestions have been made by people, ranging from compulsory savings through to copying some of the Australian ideas about where they effectively discount the inflation component of savings and they don’t tax it. So there's you know 25 propositions out there.

DUNCAN So should KiwiSaver become compulsory is that what you're saying?

BILL No all I'm saying is there's a whole lot of advice about what to do, the government hasn’t considered in detail any particular option. I'm simply making the point that the job of rebalancing the economy is not finished, we need considered and consistent change over time.

DUNCAN So you're saying the moves that are likely to come around that savings area, there's more to come?

BILL Well it's going to be a continued theme of government policy, but I wouldn’t want to prejudge any particular measure that the government might take. We're interested in the kind of debate actually that the commentators in some of the websites are promoting around what steps to take to rebalance the economy.

DUNCAN In some of those websites and some of those commentators also promote privatisation or partial privatisation of some state assets. Now I know that you have ruled out partial sale of KiwiBank, but what about other assets, I mean when are you going to make a decision to review this and give New Zealanders your policy in this area?

BILL Well as you know we've stated our position pretty clearly, no asset sales this term and if we change our mind we will campaign on that in the 2011 election. The Prime Minister has signalled in the last month or so that we will kick the tyres on the issue, because we haven't done any work on it...

DUNCAN What does that mean kick the tyres? You’ve used that term now for months and months and months. Do you agree with partial privatisations or not Mr English?

BILL Well we want to have a look at it, see whether it's sensible and viable and worth the effort that you'd have to put into it. In fact in the big picture it's off to one side a bit, but the big focus the government's had over the last six months has been to manage our 200 billion of assets better. Any kind of partial privatisation would be a very small number compared to the 200 billion assets that the taxpayer already owns, and that need to better run.

DUNCAN Before I move to the panel I just want to ask you one final question. Your Revenue Minister Peter Dunne, recently floated the idea of tax deductions for health insurance for people over 65. Is that a direction that you are comfortable with, that you would like to see the government move in?

BILL Oh we're not headed in that direction. That policy has been floated and considered a number of times in recent years, but we need to maintain the tax base as it is.

DUNCAN So no, you're ruling it out are you Minister?

BILL Well you know Peter's someone we work with every day, we don’t jump to conclusions to rule policies out, all I'm saying is that we need every tax dollar that’s coming in.

DUNCAN Alright I'll just introduce the panel, Patrick Smellie and Tracey Watkins to you Minister.

PATRICK SMELLIE – Businessdesk.co.nz
Bill is this the recovery we had to have? You know you look at it very weak economic numbers this week, over the last couple of weeks in fact. Where does the growth come from, if it doesn’t come from the domestic economy?

BILL Well as you pointed out some of the domestic numbers show that people are being very careful about their spending. The numbers also show New Zealanders, their collective debt has stopped rising, and in fact it's been decreasing a bit, cos I think everyone's realised how vulnerable they are if they're highly indebted. The good news is on the other side of the ledger that our export prices have been good, and our export performance is starting to pick up.

PATRICK Export growth and export prices are great when they're up, but that’s volatile, it's not in our hands. What are we actually capable of doing which gives us a boost on that export, on the tradable side particularly?

BILL Well look the boost form the export tradable side will come from in the first place those commodity prices, and they do matter, I mean we are fortunate to be hooked to the Australia China train, and they're two of the faster growing economies in the world, so it's great that we can benefit from that. But we also need the domestic policy that’s going to allow resources to move from the New Zealand tradable sector, which is growing too fast in the last five or six years, into the export and tourism sector, and that’s people and capital, and that’s why for instance in the budget we rebalanced the tax system so it favours savings investment and exports, and discourages too much consumption and over borrowing.

PATRICK One of the big opportunities seems also to be in extractive industries, mining and so forth. Do you think you’ve muffed your opportunity to get that fast growth from that area going?

BILL No, not at all. The government is focusing on three or four areas particular sectors where it thinks we can get faster growth, particularly if we get the regulatory environment sorted out. So in the case of minerals there's been some debate about the national parks and the conservation estate, but there's a forward ranging programme to develop our mineral and resource base, most of which has not been controversial at all. We're also focusing on aquaculture, and sorting out the framework for our most strategic asset which is water.

DUNCAN Mr English, just bring in Tracey Watkins here from the Dominion Post.

TRACEY WATKINS – Fairfax Political Editor
Bill I guess one of the big issues, you talked about kicking the tyres on asset sales. There's a number of other policies that you do want to kick the tyres on at some state I assume. One of those would be Working for Families, and I guess you’ve delivered big taxcuts during this term. A National government sort of stands and falls by the ability to deliver a rolling programme of taxcuts, and can you do that in a second term, if you don’t address policies like Working for Families?

BILL Well with Working for Families we made some pretty clear undertakings in the 2008 election that we weren’t going to alter it in any significant way. There's been a few minor changes to it in the budget, and that’s been important, particularly through a recession to both protect people from the sharp edges of recession, but also to keep pumping money into this economy, and so we haven't got any plans to change that significantly. I don’t think we would have a strong expectation of rolling taxcuts, that implies there's going to be a lot of spare revenue to give away, and I can't see that that'll be the case for the next five or six years. There may be other propositions for rebalancing the tax system, but like the 2010 budget, the dollar you give to anybody you have to take from someone else.

DUNCAN So are you saying no more taxcuts Mr English from that comment then, this is the end of it, the October taxcuts are at their will, you will not campaign on taxcuts at the next election?

BILL Well look again, I don’t want to get into the you know are you going to rule it out game. In a programme of considered change over the broad range of economic policy, we're not going to rule options out. All I'm saying is that any further changes in tax will have to follow the same pattern as the 2010 budget, and that is that they're fiscally neutral and that they help rebalance the economy, and if someone comes up with propositions that achieve those ends, then we'd be interested in them.

TRACEY I guess the other thing is if you look at what's happening in Europe etc, how worried are you that there's a possibility of going back into recession?

BILL Oh I'm not particularly concerned about New Zealand going back into recession. I think there is going to be some dips and puddles on the road to recovery, and you're seeing that with the confidence waxing an waning. Our vulnerability to those overseas markets is primarily through the fact that we owe foreign lenders 170 billion. We're out there in the market every week raising money to refinance old debt, and to finance the new deficits. Those markets are particularly sensitive at the moment to what's happening with European banks, what's happening with developed world governments who have got too much debt, and we need to make sure we've got a good strong story, and I think we're developing that, and a unique story for New Zealand, to ensure that we maintain access to those markets. So probably a bigger risk is not so much going back into recession, it would be at the extreme a repeat of 2008 where the pipeline of money coming into New Zealand simply shut off, and that would put us in the position of you know drastic measures like Greece or Ireland. Now we've set a course from the last budget to make sure that doesn’t happen. If we stay on course it won't happen.

PATRICK I actually wonder what you think advice for a small or medium size business in New Zealand which is only really exposed to the domestic economy, how should a person who's looking at this waxing and waning sentiment, respond to that. How would you run a business for the next year?

BILL Well I think they're going to have to be pretty patient, because the households are telling us they're going to be cautious about their spending, they're not going to be willing to run up a whole lot of credit card debt or hire purchase because they realise debt can be a problem. Some of them still don’t have enough job security to book up future income, and to go buying things. So I think small and medium businesses who are just New Zealand focused need to be pretty patient, they need to do what they can to reduce their need for debt, and like the government and households are going to have to focus pretty hard on productivity. That’s how they’ll get through and I must say businesses have been very resilient through the last couple of years, I've been impressed with the way they’ve rolled up their sleeves, got on with what they needed to do. Because they’ve handled those tougher times pretty well I think they’ll be in good shape to handle a rising economy.

DUNCAN Okay Bill English, thank you very much for joining us today, we'll have to leave it there, Patrick Smellie also from Businessdesk, thank you for joining us on the panel, and Tracey Watkins from Fairfax Dominion Post. Great to have you guys here.

ENDS

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