'THE NATION'

BILL ENGLISH
Interviewed by DUNCAN GARNER

Duncan Just before we came on air I spoke to Finance Minister Bill English and I started by asking while the government is making big cuts in its spending why is it that Kiwi Savers face cuts in government incentives to save.

Bill English – Finance Minister
There's going to be just as much cash going into Kiwi Saver in the future as there has been in the past, but more of it will come from real savings, that’s out of people's pockets from employers and employees, and less of it from the government because at the moment we're borrowing that money from foreign lenders and putting it into bank accounts. So there’ll be more saving done in New Zealand as a result of the changes in Kiwi Saver, because the government will be borrowing less and New Zealanders will be putting in a bit more, bearing in mind that over half of people in Kiwi Saver already put in 4%, and we're talking about lifting the minimum up to 3% contributions.

Duncan So how is that going to keep the economy at some kind of pace, I mean if anything it will slow the economy down won’t it?

Bill Well this is pretty well phased. Bear in mind here that what we're doing is we're on a long term programme to lift savings and investment in exports and overall less consumption, less borrowing, less housing speculation. So by 2013 you are going to be seeing people with lifts in their income, more jobs, higher wage increases…

Duncan But you're taking money out of the economy though aren’t you though Mr English, you're taking money, disposable income if you like out of the economy. How on earth is that going to help reach that 4% growth figure that you're talking about by 2014?

Bill Well we think that we've got the balance about right here. We could have taken more cash directly out of household incomes. For instance we'd have bigger cuts in Working for Families, we'd put interest on student loans. We decided not to do that. What we did decide to do was shift the balance in the savings scheme which has a more gradual effect over a longer term, and I think by 2013 when this economy is growing pretty well and people are getting wage increases, that shift from 2 to 3% which will only affect about half the people in Kiwi Saver, will be about the right timing. I think if you did it now you'd have a point, but we're not doing it now, we're doing it in two years' time.

Duncan I want to get to those growth forecasts in a second, but just first of all that $1043 member tax credit, can you just confirm this morning, will that be halved this year? So will Kiwi Savers notice it being halved in July this year, or are you waiting for that to come into place next year? I want to be clear on this.

Bill Okay well just to explain how it works. In July this year we will put the $1043, the current tax credit into Kiwi Saver accounts, because tax credit is paid at the end of the June year. So in July this year the government will be putting about $1.2 billion into Kiwi Saver accounts, the $1043. The rules were changed last night in the parliament which mean that next July, so seven or eight months after the election, that is when the payment from the government will be reduced.

Duncan So everyone will receive their full payments this year, in this July everyone will receive their $1043.00

Bill Yes they will.

Duncan I just want to look at also that tax exemption that has now been lifted. That is going to seriously impact on people earning over 60-65 thousand dollars. If anything their increased employer contribution up to 3% they lose it all. How on earth is that an incentive for savings?

Bill Well they won’t lose it all. That story's simply just not correct. Bear in mind these are people who've had a significant cut in their income tax rate, and one of the reasons we've abolished that exemption is precisely because that 200 million dollars goes mostly to people on higher incomes, or they mostly benefit. So it actually makes the scheme fairer by spreading the government subsidy, which over the next five years will be about two and a half billion. Over the next four years we'll be putting two and a half billion into accounts, and that'll be spread fairly across all Kiwi Savers.

Duncan If you want to look at one of the elephants in the room on Budget Day on Thursday afternoon when you came in, it still has to be Superannuation. I've gone through your budget numbers and the cost of New Zealand Superannuation goes from about 8.5 billion to about 9.5 billion roughly in just the next 12 months. I know you’ve been locked in by the Prime Minister's promise not to mess with New Zealand Super, but when do you think is the time to signal changes to the cost, the burgeoning cost of New Zealand Superannuation?

Bill Well as you said the government has taken a very straightforward position about national super which is not to change the payments, or to change the age of eligibility. There's been significant increase up to $140 a fortnight over the last 18 months for a married couple on superannuation. Look New Zealand's had 30 years of debate, 40 years of debate about super, it was settled under the last government and we decided to just leave it how it is. You're right the cost is going up.

Duncan And the cost is going up, and why can you not signal, like the Labour government did in Australia in their previous budget, the one before last, some kind of change heading into the future, maybe in 2020? That would not be breaking a promise would it not?

Bill Well we undertook not to make any changes to it and I think in the context of the global financial crisis that was a good idea because it mean that all those people 65 and over, or 55 and over who know they're going to be on national super for 15-20 years in a lot of cases had the security of knowing it wasn't going to change. What we are doing right now and will be for the next wee while is focusing on the next biggest spend in government which is around long term welfare dependency and we hope to make some progress there.

Duncan And you’ve brought up Welfare, and I've gone through the numbers, 22 billion dollars is the Welfare spend over the next 12 months. It is huge, and going through the unemployment numbers, they go up by about 700 million dollars, sickness beneficiaries go up by about 100 million dollars in this budget and also the Domestic Purposes Benefit go up by about 70 million dollars from memory when I was reading it. I mean we are talking still a massive expansion in Welfare, despite your growth figures of 4% in two years' time, and despite your prediction that there's 170,000 new jobs in the next four years. Those welfare numbers in this budget are still ballooning.

Bill Well I wouldn’t say they're ballooning, they are rising, and a lot of that is just the cost of living adjustments, bearing in mind these are the most vulnerable people in our community who live on the lowest incomes, and right through this recession we protected those incomes and security…

Duncan And what are you going to do about it Mr English going into this year's election, because clearly it's been left out of this budget, yes you’ve made some changes but not around Welfare. You’ve got that Welfare Working Group report that happened of course on the day of the earthquake, so I suppose everyone can be forgiven for not focusing too much on it. But you have an election, are you going to go in seeking a mandate? What sort of changes are you looking for?

Bill Well we're going to be focusing particularly on the longer term dependency. There's 170,000 people on benefits, who've been on benefits for five of the last ten years, and we estimate that the future liability for that group is about 50 billion for the time that they will be on benefits, and worse than that they're actually having pretty miserable lives, and over the next five to ten years New Zealand's going to have skilled labour shortages because of the demographic bulge of the baby boomers moving out of the workforce and less young workers coming in. So there's a big job there and you'll be hearing from us in the run up to the election about what our plans would be if we're elected in the next term.

Duncan Just looking at this budget and a lot of it relies on the growth figures of the next two years. Only 1.8% growth over the next 12 months. Why is it so flat?

Bill Well that’s taking into account the fact that we had a negative quarter in the last quarter of last year, we still haven’t got the growth figures for the first three months of this year, but that’s when the Christchurch Earthquake happened, and 10% of our economy came to a stop in a matter of two minutes. So that’s going to be pretty negative. So that’s holding down the figures for this 12 months, but then they start rising off the back of the highest export prices in a generation, and the Canterbury rebuild.

Duncan So where are those jobs? I mean I've looked at Canterbury, I think there's about 12,000 new jobs expected to be created there. You're contracting jobs in Wellington by the looks of things with your billion dollars of cuts to the Public Service. So that leaves about 160,000 jobs. I'm sorry but where are they? I mean can you say where they are?

Bill Well they’ll be spread across the economy, but they’ll be driven primarily by the new shape of the condition which is that it's going to grow by earning in the next ten years, where in the last ten years it grew by borrowing. So you're not going to see really strong growth in government, you're not going to see really strong growth in retail. You’ve seen a lot of shrinkage in the construction sector which is job rich. As we move through in the next two or three years it's going to pick up and replace the job that’s lost.

Duncan Where is the big signal in this budget, you’ve come into criticism from the likes of Infometrics, from BERL, from these economists who say there is no big signal in here to invest and to export. I think Ganesh Naan was talking about the word export being mentioned twice in your budget, and the word savings 19 times. So where on earth in this budget is that focus, that unrelenting focus on earning and on exports?

Bill Well that’s been there through the government's plan in its last three budgets. Right from 2009 we've said we need to rebalance this economy from excessive borrowing and housing speculation and consumption, to investment in exports, and we've made major changes to the tax system, major infrastructure investment, major changes in our regulatory system around the Building Act and the Resource Management Act and so on, all designed to shift the investment incentives and economic incentives in the right direction. So there isn't one big signal, there's just a constant programme. Now we are I think across New Zealand, people are getting in a more positive frame of mind, they’ve absorbed the shock of the earthquake, and we'll be moving to a stronger positive focus as the economy picks up.

Duncan The ratings agencies still seem to be sort of crossing their fingers, and like you they appear to be hoping that that growth figure kicks in, because if that growth figure doesn’t kick in of 4% in 2014 you're in the hole to the tune of billions of dollars in lost revenue and growth aren’t you? I mean that’s what your budget says, if you don’t hit 4% you're in trouble.

Bill Well the ratings agencies have done a bit better than that actually, they’ve confirmed our credit ratings and that is the first payoff for a tight budget, and if they hadn’t confirmed those ratings, if they'd said they were going to downgrade us, then every New Zealander would be paying higher interest rates and that would certainly stifle a recovery. With respect to the 4% growth there's actually a subdued recovery from a recession often coming out of recession growth rates reach 5 and 6%. Treasury's forecasts are pretty much in line with everybody else, they don’t stick out. Yeah sure there are some risks, but we're confident that with the changes we've made, with the resilience that New Zealanders have shown through the recession, with the patience they’ve had about getting their debt under control, and putting up with relatively low wage increases, they're ready to start moving over the next 18 months.

Duncan And looking at the Australian Budget last week at some of their growth figures, we are still miles behind in any path to catch them. When are we going to catch Australia or do you accept that we're not going to catch them?

Bill Oh no, we're still focused on 2025. I think you'll find that as our growth picture gets more positive the Australian growth picture is actually getting ….

Duncan But they're still ahead of us though aren’t they Mr English?

Bill Well they're still ahead of us, and this is a gap that’s opened up over 30 years and we're not gonna close it in two or three, but the Australian economy has its own problems and where they were outperforming us two or three years ago, that gap is going to close up over the next two or three years despite the huge surge they’ve had in their resource sector. The rest of the Australian economy is starting to look like ours did 18 months ago. So we're confident we're competitive with Australia, we're making the right policy changes and over time we can close that gap.

Duncan Alright Bill English, Finance Minister, thank you so much for joining us on The Nation this morning.

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