Panel Discussions Led By Paul Holmes

Response to BILL ENGLISH interview

PAUL Well has Bill English made the most of his once in a generation opportunity? Now Dr Brash you said you we're hoping for quite a radical budget, and you said that if New Zealand is to catch Australia in economic performance by 2025, that means 2% growth per capita above Australian growth for the next 16 years, I think you elaborated on it thus.

Video Clip: Don Brash: '2% increase in our growth rate above Australia's growth rate, for 16 years. Now can we do that? Some countries have done. We have never done that sort of growth rate historically in our past, so this budget I'd like to see make the transformational change that we need to achieve the government's own goal.'

PAUL So that was the expression, transformation change, was a budget of transformational change, or was it a tinkering budget?

DON BRASH – Chair 2025 Taskforce
Paul my initial reaction was a very positive one, in fact I think it gave it a 7 or 8 out of 10 on radio on Budget Day, and I think the point the Minister's just made about the reduction in the marginal tax rate facing a very large number of New Zealanders is a significant benefit. Having said that I don’t think it was a transformational budget, the Minister himself acknowledged that the Treasury's estimate is that it will lift the level of GDP, not the growth rate, the level of GDP by about 1% over a seven year period, that’s the Treasury's estimate. It may be too conservative, and he quotes the IMF saying it's a bit too conservative, but it isn't something which will lift our growth rate by 2% a year for 15 years.

PAUL` But what can you actually do, I mean as he said there's no policies been presented to me as a Finance Minister or Finance Spokesman for so long, there's no silver bullet.

DON Well there are two things that worry me about it, first of all the government spending in the next year relative to GDP, will be as high as it was in Labour's last year in government. So there's no significant reduction of that excessive level of government spending at all, and that’s a worry. Secondly, while the company tax rate reduction is I think a step in the right direction, if you want to get more investment and more capital per worker, if you factor in the other changes which affect how much tax companies will pay at the accelerated appreciation allowance being withdrawn and so on, the effect is that companies will actually pay more tax under the budget than they did previously. So it doesn’t achieve a reduction in the tax on capital and therefore is unlikely to stimulate more investment.

PAUL Let's go to Helen Kelly, because you are concerned about the amount of money in people's pockets, and you were anxious that this was not a time, even though we are fresh from recession, to be cutting spending, here's what you said last week.

Video Clip – Helen Kelly: 'We are still in a recession and the government needs to continue to invest in stimulating the economy, and we don’t think you do that by taking money out of the economy and having such a small spend...'

PAUL So there you are, Don Brash is complaining still about government spending being as high as in Labour's last year of office, are you happy?

HELEN KELLY – Combined Trade Unions President

No I mean there are three things about this budget that I think actually highlight for me. One is the massive shift of wealth to the wealthy, and no only that we're actually borrowing to enable that shift in terms of the tax cuts, and I think that puts a mockery to all Bill English's claims over the last year the government's borrowing too much, we need to be worried about that. They are prepared to borrow to give huge tax cuts to wealthy people.

PAUL He says don’t worry about that top end, he said what we've done is distribute, we've reduced taxes in that great middle and ...

HELEN The government's bragging that 73% of the population will be paying 17 cents in tax, that’s because 73% of the population earn less than $48,000 a year, not something to be proud about.

PAUL Here's what he actually said just before.

Bill English: We happen to think that the incentives for those Kiwis which is the vast majority, are more important in the economy than a handful of people at the top end.

PAUL You see that’s how he sees it, incentivising.

HELEN Yeah but people, who are working 40 hours a week are incentivised to work 40 hours a week. The fact is we're a low wage economy, I mean what Mr English had to say about early childhood education for example is simply wrong, they're cutting $1.50 an hour per child out of the budget. The reason that spending has gone up is because Labour introduced 20 hours free, fully trained stuff and improved the quality of early childhood education.

PAUL But it's a hell of an increase isn't it, over a very short period of time.

HELEN Well it's for a very small group of kids on a very low base, so we had a very low base spending on early childhood and we've invested in it, and it's something that we should be very proud of, and that parents will be very concerned about.

PAUL The politics of it again Therese, was it the beginning - I think somebody wrote this week it's the beginning of National's 2011 election campaign.

THERESE ARSENEAU – Political Analyst
I agree with that, and I actually think I agree with people on both sides of me as well on a number of the issues. I agree with Helen that the reaction immediately was extremely positive and I think largely because how they controlled the message. I think things will start to become unpicked, and what we find typically with Budget, eventually people start talking about the cuts in programme, and that has an impact. It's worrying I suppose for National's election prospects that inflation will be at its peak during election year, which we know from research that inflation is one of those things that can dampen the vote for a government. Really this budget really comes down to the big picture, because if the people you're talking about Helen, if you want them to earn more money we have to as Bill English said, move them up the income scale, and how are we gonna do that – we're gonna do that by growing the economy. So what this budget really needs to be judged by, this is the thing that National was elected for, was whether or not they can fix the issues that we've had in terms of economic growth, and that’s where I think you know it's been a fairly balanced approach, it isn't the big bang perhaps that you were looking for, but perhaps it's not as bad as you would…

PAUL Well we've had big bangs haven't we, that frighten horses.

HELEN We've had taxcut after taxcut after taxcut, and no link to economic growth, the biggest taxcuts in 1986 saw the economy flatten out. I would have liked to have seen investment in skills and training investment and out the unemployed, and investment in some of the infrastructure deficits that we've got in this currently.

THERESE That’s where I would criticise this budget, there's a lot of talk that this budget is going to lead to investment in more productive ends of the economy, including exporting, and I don’t really see the incentives there for that just yet, but it really does come down to the top income group who are keeping more of their money, what are they going to do with it. Are they going to invest it in a good way? Are they going to buy flat screen TVs, and really giving people the incentive to spend it well in a productive way, or to save it, is what the government is looking for.

PAUL` I mean in the end it's all about wages isn't it, catching Australia really is all about wages, I mean fundamentally it's about how much people earn at the end of the week, and I spose what Bill English has done is put more money in people's pockets in that great middle area.

DON But fundamentally we won't catch Australia without lifting productivity, and we won't lift productivity without more investment. And I guess that’s my underlying concern about the budget, it doesn’t do much directly to encourage investment. The Minister is right that he's got a very important responsibility to make sure government's own assets are productively used, he's got 200 billion dollars in his portfolio so to speak, but it doesn’t do very much directly to stimulate private sector investment.

HELEN And he hasn’t said that he's putting more money in the middle pockets actually, he says the gap between rich and poor is unchanged, I think the gap between rich and poor has grown, particularly when you add GST and inflation and its impact on low income people.

THERESE The philosophy underneath it is exactly what Helen said, we see a very different philosophy from what Labour would have done, and what he's talking about is hard working Kiwis getting ahead under their own steam, and I think we've seen a shift in terms of voting population wanting more of that.

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In response to MAURICE WILLIAMSON interview

PAUL So panel what do we make of that? Was it a cock up right from the get go, the Building Act of 91. He doesn’t accept that.

HELEN Well I wouldn’t want to play the blame game either if I was in his position, but you know this is our big financial crisis equivalent isn't it? Too big to fail, and I think the government needed to step, in at some level and try and play a role in sorting it out. I can't judge whether they’ve done the right thing, I would have liked to have seen it more targeted based on income and house value, and I think there will be some families as you say that won't be able to take advantage of this simply because of the huge cost that they’ll have to bear themselves. I also think it's really interesting ….

PAUL The loan will be guaranteed but of course it's whether you're on a fixed income and being unable to service it.

HELEN I think at the same time this government's taken 80% of the budget for fixing up state housing out in this budget, so their own housing they're gonna let rot and deteriorate, while they're paying for private homeowners to renovate their own home.

PAUL But you know it's a serious problem isn't it, right across the board, it's a massive massive massive problem.

THERESE It's a meat and potatoes issue, I mean a home is a necessity, it's not a luxury, the scale of the problem, I mean if you buy a TV that doesn’t work you know it's not of the same magnitude as a house that you would buy expecting that it's gonna last 100 years, but …

PAUL It's frightening though, you know the extent he's talking about, they just don’t know the extent, how long the problem's gonna go on.

THERESE I think the lessen to be learned from this is, there is such a thing as good regulations, and what scares me is this government seems to think the word regulation is synonymous with red tape, yeah red tape, bureaucracy, nanny state. There's such a thing as good regulation.

PAUL The Building Act of 91, am I right to blame it all back to them, there was no problem before that.

DON I can't answer that question Paul, I think the Minister quite rightly said there are a lot of other parties involved as well. I think this is an awful situation, we're choosing not between good alternatives and bad alternatives, but between least bad options, there are no good options at all.

PAUL Is it one of the great New Zealand government stuff ups of all time, this issue, and I'm not just saying the National Bolger government, Labour's handling of it all the way through. What do you think?

HELEN One of them.

PAUL One of them. What do you think?

DON I think that’s got some truth in it, but it does imply that it's entirely the responsibility of central government, and I don’t think that’s right.

THERESE But the issue also is that there were warning signs from 1994, why did it take so long is another important question.

HELEN And have they fixed it now, is the biggest question, and there's still some speculation around whether we've got it right now to stop new buildings being built that leak.

THERESE And we won't know for such a long time.

PAUL Maurice are leaky buildings still being built?

MAURICE Paul we've got a whole new regime in place in which we've got unbelievable standards on it. So the answer is no, except there might be one in every 20,000 or 30,000 which is like cars having a crash on the motorway, you can't guarantee a car won't have a crash, but if it's a very very minute percentage compared to one in every five that was going on in the past when it was building, I think the new Building Act and the new Building Code and the reforms we're putting in place with licensing the practitioners will have a huge impact on getting this right.

PAUL Thank you very much Minister indeed. Alright just quickly is 25% enough?

HELEN It depends on the value.

PAUL Alright, time to look at the week ahead, what are your predictions for the week to come, Don.

DON Well it'll be mainly about the Budget again I think, and I think there'll be three questions dominating the discussion, one is will it increase growth, and I think I'm pessimistic on that score, the second question is, is it appropriate to be looking at an increasing deficit in the year to come at a time when the economy's coming out of recovery, because that’s what the budget actually envisages, and thirdly the question of is it fair. And I think so far the debate's been about how much Paul Reynolds will get out of this tax package, and how much someone on the average wage will get, I think it's important to work out how much Paul Reynolds will still be paying in tax compared with someone on the average week. Can I quote two figures to you, someone on $50,000 with a spouse and two children is paying a net $1500 round figures in tax after taking off Working for Families. So in $100,000, twice the income pre tax is paying $27,000 in tax, 18 times as much. So you’ve gotta get the fairness question in perspective.

THERESE I agree the Budget will be the big discussion point, I think the momentum shifts now to the critics of the budget, to the detail of the budget, National though will have to try to keep the emphasis on the big picture, and the really important question I agree with Don is will it increase productivity and I think the jury's still out on that.

HELEN I think the focus will be on the Budget, I think every Opposition politician will find themselves in an early childhood centre this week, and lots of photos with small children, and I also think you know 50% of this country's population earns only 18% of the income, so that’s the reason why there are the Paul Reynolds of this world and such big disparities and that will come under the spotlight this week.

PAUL I thank you all.

ENDS

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