Lisa Owen interviews Bill English

Headlines:

Bill English accepts migration putting pressure on schools, hospitals but sees no need change to change levels

No plans to lower immigration caps for foreseeable future: “We don’t see a strong case for changing that right now…It’s helped grow our economy”.

English says there isn’t a two-speed economy between Auckland, Christchurch and the rest of the country

Not keen on NZ First policy to require new arrivals to be sent to the regions for five years

Declares any tax cuts would have to come out $1.5 billion set aside for extra spending

Categorically rules out increasing GST

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Lisa Owen: Good morning Mr English. I want to start with immigration. Treasury is predicting that by December net migration will be about 38,000. So that means more growth, more taxes, more people and more skills coming into the country. Do you welcome that?

Bill English: Well the turnaround is a reduction, a sharp reduction in the number of New Zealanders leaving New Zealand. And that’s what gives you the shift in the net figure. The number of people coming in has been pretty steady now for a number of years in New Zealand and that does bring skills that we need, it brings family members for existing migrants. And that number hasn’t altered. In fact most years we don’t quite meet the limits that have been set.

But it has been steadily high-

It has been. It’s around 50,000, 60,000 and it’s been steady for a long time. But look it’s part of a growing economy. It’s a measure of success with the economy that more New Zealanders decide to stay home.

But even you would accept that brings challenges. Just this week you were saying that you were seeing pressure on schools. Tell us about that -

Well we see because people aren’t leaving, there are schools where is there’s roll growth pressure and the Ministry of Education is working on that. There are other challenges. I mean a lot of people have mentioned that it puts a bit more pressure on the housing market and that’s why it’s so important that we continue with our measures to improve the supply of housing as quickly as possible.

Presumably on things like hospitals as well too when you have a growing population?

That’s right. And there’s always been pressure on our hospitals with migrants turning up with people who may or may not qualify for free care. There’s nothing particularly new about that.

But in saying that we have had this steady flow of people coming into the country, what planning have you done to prepare for that?

Well there’s always planning to prepare for it, particularly around government infrastructure, to make sure there are enough hospital beds, that there is growth in school classrooms.

But specifics here, you’ve said that there is pressure on the school roll. So what specific planning have you done in relation to schools? Can we expect more schools? Whereabouts do we need them?

Ah yes. The answer to that is yes. The Ministry of Education has working on that. In any case in our growth population areas there has been pressure on schools for years and they are doing a better job now of getting ahead of that growth. Although the turnaround in the number of new - the reduction in the number of New Zealanders leaving has been fairly sharp and so the Ministry of Education is running pretty hard to keep ahead of it.

So how are you in the short term going to keep pace with that?

Oh just more classrooms. There’s money allocated in the Budget as part of an overall programme for the year to get more classrooms to the schools where the children are turning up.

So do you have a number for how many more schools we might need?

Look I couldn’t give you the number off the top of head. There is an ongoing growth programme and the Ministry of Education and the Government have agreed that rather than wait until growth turns up and there’s a problem, they are trying to get ahead of that. Money is not a constraint to that. Often it’s a simple as finding the land and getting the classrooms to the right schools.

So in light of all of this, do you think it’s time to start considering a cap on immigration?

Well there is a cap on the number of people coming in. What we don’t have rules about is how many are leaving. And in fact we like them staying, it’s a good thing. We don’t regard that as a problem. But it is a challenge for the economy.

To counter that, should we be taking less other people? Fewer other people coming in?

Well in our view we don’t see a strong case for changing that right now. A steady inflow that allows us to get the skills that we need, also bringing close family members for people who are already here, has been a steady successful policy for New Zealand. It’s helped grow our economy.

But if you don’t see a need right now to do that, that leaves the door open to the fact that you can see in the not too distant future, that may be something you have to address?

No we don’t see a case for that because what is happening is less New Zealanders going overseas. That’s a development we welcome.

Are you worried that we are potentially getting a two-speed economy here? You look at say Christchurch and Auckland where there’s an increase in the cost of housing, spending. I mean an economist has told us if you take Christchurch out of the mix, that’s conservatively 1% of the growth that we are experiencing, while the regions are sluggish. Do you think that we do have a two-speed economy?

Well no I don’t agree with that. I mean if you look across the regions you’ll find plenty of buzz in provincial cities outside of Christchurch and Auckland. It’s now become a feature of this recovery that it is broad based, that it’s about confident businesses, confident consumers, businesses right across the country doing better.

In saying that if we look at some numbers I’ve got here, Hawkes Bay GDP down 1.3% last year, retail is down in Waikato, Manawatu/Whanganui median house price is down 2.4%. And stats show in 85% of the provinces the only growth in population they are getting until 2031 is over 65s. So that indicates a sluggishness doesn’t it?

Well there’s been – the demographics of some of our regions like my own one in Southland have been locked in for 20 or 30 years. Where there’s been less children born, you’ve got a greater proportion of retirees that are over 65, people in those areas. That’s a long term trend. What makes an impact on it is economic growth. And in those regions, with a few exceptions, there’s pretty strong and now consistent economic growth. And our job is to ensure that it’s sustained as far as we can over time given the risks with the rest of the world and to ensure that all New Zealanders share in it.

Well you’d probably be aware that Winston Peters is saying he’d like immigrants to be sent to the regions for a minimum of five years and that that is going to be a bottom line for him in a coalition. Could you do a deal on something like that?

Well look it’s already happening. If you go to our regions you will find there’s been quite –

No, could you do a deal requiring it though?

Ah look, we’re not keen on that sort of deal. And we don’t want to get in to some discussion about hypothetical deals with parties who may or may not be in the Parliament. And we may or may not be the party that has the opportunity to do those deals. I think we’d be getting well ahead of ourselves. We don’t see any significant problems with the current migration settings. It’s no surprise that Winston Peters brings up migration on the eve of an election. It’s a bit of an old saw. But the issues at the moment are signs of success. That is New Zealanders not leaving for Australia. And we are not sure what Mr Peters has to say about that.

Alright well I want to move on to tax cuts now. Even before the Budget surplus was officially announced there was talk of tax cuts. You actually called it speculation and it was the Prime Minister who raised it. You are at odds with the Prime Minister on this aren’t you?

Oh, no we aren’t. When those comments and the discussion was going the Budget was well put to bed. And it’s indicated that there is room to move the allowance the Government has each year to cover increase of public spending and any tax reductions, which by definition would have to be pretty modest.

So are you saying after sweating to get back into surplus you are quite happy to go ahead with a bit of a lolly scramble with tax cuts?

Ah there is certainly no lolly scramble. Just to give you an indication the allowance we’ve set each year is about $1.5 billion from next Budget on. That’s up from $1 billion at the moment. Up to 2008 the average was $2.5 to $3 billion for the five years up to 2008. We’ve got quite small new spending. There’s no room for a lolly scramble and any tax reductions would have to be modest to fit within that extra $500 million a year.

Even so your 2010, the projected costs of tax cuts in 2010 was something like $4 billion a year. That’s still not small change?

Well there was a different package then and it was actually about cost neutral. Because remember we cut income tax rates but put GST up.

So any tax cut would have to be less than that?

Oh well it would be much more modest than that. I mean there’s only about $500 million a year available. And that extra $500 million has to accommodate any other new public services or extra demands from the community at large.

So can you rule out the prospect of raising GST?

I certainly can. Yes.

Absolutely it will not go up under your watch?

That’s right. We’ve made an increase in GST and there’s certainly no more than that.

Well the Prime Minister said otherwise yesterday. He said he couldn’t rule it out. So are you at odds on that too?

No, we’re not at odds on that.

Well how is that? You’ve just said to me now that you can rule it out categorically. He was on radio yesterday saying he cannot rule it out.

Well look I can’t comment on that directly. But we have got no plans for increasing GST.

I want to quote you here. Last year you said ‘we need to’ - and this is your words - ‘maintain a disciplined approach to spending during the economic upswing even if the economy and the Government’s finances improve by more than expected’. That’s what you said. So are you telling me that tax cuts is a disciplined approach given that we haven’t even banked our surplus?

Look it fits within very disciplined new spending. As I’ve said we’ve essentially created a new normal in the Government finances. Where governments used to spend 2.5 or $3 billion extra each year, even without tax cuts we are allowing for about half of that, $1.5 billion per year, and any tax reductions need to fit into that.

But the problem with that is you’ve spent the whole year telling us that the other lot cannot be trusted with the surplus. But as soon as you’ve got one the Prime Minister, your leader, is running around saying vote for me, vote for a tax cut basically. That’s irresponsible isn’t it?

Ah no, it isn’t because the way we’ve structured the finances ensure that we have got ongoing surpluses to pay off debt. And from what has been very tight budgeting for five or six years it’s now – we’ve got a slightly more – that gives us the opportunity for, as I’ve said modest tax reductions.

But again that doesn’t really work does it. Because you’ve got $1.5 billion to play with and you’re going to take tax cuts out of that. You could be directing that into debt reduction. That’s an irresponsible choice isn’t it? You’re going to give out a lolly rather than prepare for the future.

Well we believe we have got about the right balance and that is to share the benefits of growth with all New Zealanders, maintain our public services. And we have allowed ourselves $1.5 billion which I have said by historical standards is about half of what governments usually spend extra in any given year. And we have got a clear plan for reducing debt. And opposition parties will have to explain all their plans to fit within those numbers and I think they’ll tell you they are pretty tight not loose.

I want to raise here something that John Key has said. He’s said that middle New Zealand pays a fair bit of tax and often doesn’t get a lot in return. Do you agree with that?

Yeah some of them do, particularly with income tax. But I think - (interrupted)

So what should they be getting in return for that? If they are paying a fair bit and not getting much, what extra?

Well they’ll get for instance free visits, free doctors’ visits for under 13s. I mean this is always a balance between the fact that people on higher incomes do pay the bulk of income tax. They like to see some recognition of that. But a lot of the tax is used to target and support those who for instance have no income of their own at all, which is around 700,000 to 800,000 New Zealanders.

But yesterday in the Prime Minister’s speech he said that we are spending a million dollars an hour on those kind of welfare, super, that kind of spending. How much more can you spend on that if middle New Zealand needs more? You can only spend a dollar once.

That’s right. And we’ve been pretty careful about how we spend that dollar. So in this, the families package that we have produced in the Budget, it’s got a broad spread of families. Instead of focusing say just on paid parental leave for those who have permanent full time work, we have spread eligibility for that, so seasonal workers, casual workers, in fact a lot more lower income women can qualify for paid parental leave and the free under 13 doctors’ visits. And that will be primarily a benefit to those families which have, where there is ill health. And that tends to be lower income families.

Ok that’s a benefit. There’s a benefit for families and young children. You have said that Super, the Prime Minister is not budging on Super, and you have said that it’s come down to an issue of trust here as much of one of policy. But you told us that you would start paying back into the Cullen fund, the Super fund, once we hit surplus. We’ve hit surplus and you’re not paying in. So it’s ok for you to change your mind?

What we have done there with the Super Fund is recognise that we need to – we want to get debt down to a prudent level, 20% of GDP by 2020 and then we’ll start paying into the Super Fund. And the reason for that is if we had another earthquake or recession we can’t go and cash up assets in the Super fund. They are sacrosanct. They are for the long term. So we need to get debt levels down so that if anything goes wrong we could borrow again.

So you can wake up in the morning and change your mind but the Prime Minster can’t?

Well he made a very firm clear undertaking. The fact that the trust between –

You made a clear undertaking about the Super Fund. You said once we’re in surplus you would pay.

No. And we will -

And we are in surplus

Well we will. We don’t actually have the cash to do that right now. And as I’ve explained the logic of what we are doing –

It’s still a broken promise isn’t it?

No it’s not a broken promise. This fiscal policy alters a bit as the circumstances shift and I think that’s a reasonable alteration. The Prime Minister’s -

We need to leave that there.

ends

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