Lisa Owen interviews Finance Minister Bill English

English keeps prospect of tax cuts in 2017 alive despite not reaching a surplus in this year’s Budget, but admits some spending delays; “there’ll be some things which do take a year or two to get there”

“The ability to deliver some kind of moderate tax cut hasn’t changed and we would have the next couple of budgets to work out how that would happen.”

Warns New Zealanders “not too expect too much” in terms of Budget spending

Defends missing surplus this year and won’t commit to a surplus in 2016, saying “I don’t call it a failure” and “what’s important here is the trajectory”

“It looks like it will be a $500 or $600 million deficit, and the surplus will be the next year.”

Significant measures to address child poverty not on the agenda: “the ability to afford large-scale programmes just isn’t there”

Says specific early intervention and education programmes will continue to be the focus in this year’s Budget

Says plan to transfer 2,800 Housing NZ houses and sections to Tamaki Redevelopment Company doesn’t amount to breaking National’s 2,000 house cap as they are still in “public ownership”

Signals Auckland housing shortage is for the Auckland Council and Aucklanders to sort out.

“…there’s pretty clear signals that Auckland City Council need to get on with the job. They are the ultimate decision-maker around the infrastructure and around the consenting for new houses.”

Agrees “we’re not meeting demand” in Auckland housing market, but says he’s “happy to have the problems of success” such as high immigration.

Bill English: Well, okay, it would be nice if the number got there this year; it’ll just take a bit longer. What’s important here is the trajectory. So Government is closing its deficits; it’s getting to surplus. We’ll soon be in a position to start paying off debt. Our expenditure’s under control; the revenue’s a bit harder. You’ve just seen in the last day or two, dairy prices are going down again; that has an impact. So we’re sufficiently confident in the direction that we’re not going to cut services or cut entitlements to try and chase a larger surplus number.
Lisa Owen: So you’re telling us now it doesn’t really matter that you’re not going to make surplus, that you’re going to have a deficit. It doesn’t really matter?
No. We think that it’s really important we get to surplus. But look, imagine if someone said they’re going to lose 10 kilos of weight and they lose 9.9 kilos. That doesn’t mean they’ve failed. It means they can get to 10 kilos, it’s going to take a bit longer, and it’s the same with the surplus. It is important, it’s been an important discipline, and we’re going to keep that discipline and keep focusing on getting to surpluses.
Okay. Heading into the Budget, I’m curious where this leaves you with your other commitments, because you’ve already cut your operating allowance from 1.5 billion to 1 billion, right?
Yes.
Okay. And in recent years, you’ve spent about— $700 million of that goes to health and education, correct?
Yes, that’s correct.
So compared to when you were on this programme a year ago, you’ve actually got less money to spend, haven’t you?
Well, yeah. It’s pretty tight, and I think I’ve commented on that publicly. In each budget, we always have some savings and revenue measures that give us a bit more than a billion of total spend.
Okay. Well, before on The Nation, you said that the Government would not make any cuts to reach surplus. Is that still your plan?
That’s right. We’re not going to make any specific extra decisions now just because our tax revenue’s a percentage point – 1% down.
Let’s look at what you earmarked for spending last year. Tax cuts, debt repayments and child poverty measures, for example. Does something have to give then, given you don’t have as much money to spend?
Well, you’ll just have to wait and see in the Budget, and there is a lot of things to balance, that’s for sure. But that’s no different to a lot of businesses and households. And it does mean that you can’t do everything at once. You’ve got to work into these things; they take a bit of time.
So are you going to have to delay some things, Minister?
Well, look, there’ll be some things which do take a year or two to get there, but there’s other things which you can’t delay. For instance, this year, we’ve got a number of pay rounds in the public service – nurses, police, teachers, lots of other groups. You negotiate those pay rounds. You have to pay the bill and we pay it willingly, because these are people who deserve to be well paid. There’s some things you can delay, but a lot of things you can’t.
I just want to look at some of the big promises, like tax cuts. They were meant to come from that $500 million that you now don’t have. But is it fair to say that they’re not really likely now?
As we indicated last year, we wouldn’t be able to contemplate that until 2017 for some of the reasons that you’ve outlined. So at the moment, the ability to deliver some kind of moderate tax cut hasn’t changed and we would have the next couple of budgets to work out how that would happen.
Hang on, Minister. It has changed, hasn’t it, Minister, because you’ve just identified the fact you’ve got less money, so it must have changed.
Well, we’ve shifted the money from next year to the year after; that’s technically what’s actually happened. We’ll deal with that as time goes on, but the point I’m making is our finances are-
Is it likely that your tax cuts then will be delayed as well? Maybe 2018, not 2017?
No, we’re not suggesting that. We said at the end of last year that they would be possible in 2017. We’ve made allowance for that.
Okay. So what about measures to curb poverty, then? Will they have to be delayed? Because the Prime Minister identified them as something of a priority. Is that going to be delayed?
Well, we’ve been working on these issues for a while, particularly focused on communities and families with persistent deprivation and caught in a cycle of dependence. And so you could expect to see us continue with that sort of programme through this Budget.
But you’ve started talking about early intervention programmes. What do you mean by that? What might we be expecting?
Well, we’ve got a lot of that going on now, and they’ll continue to be funded – early intervention and education, highly specific programmes focused on young New Zealanders who have the aspiration and the potential to reach NCEA Level 2, but at 10, 12, 13 years old, look like they’re not on track. Or sickness and invalids beneficiaries with more support for their health issues and more support for employment, could actually get out of dependency, off welfare and remain in work. So those sort of programmes will be funded.
But can we expect something in the Budget –some measures to counter child poverty? You can still afford that?
Well, as we’ve pointed out, the ability to afford large-scale programmes just isn’t there. We’ve got a track record of addressing these issues at their most fundamental level, and we’ll continue with that.
But then, do you see what I’m getting at, Minister? You have limitations, because you’ve got a certain amount of money; it’s less than what you expected. You’ve still got a shopping list of the things that you want to spend it on. Should we be expecting less, or does something have to give?
Well, you shouldn’t expect too much, of course. And I do know what you’re getting at, because I’ve spent the last three or four months working away with all these issues, and we’ll lay out the detail. But you can expect to see from this government what you have in the past, and that is a pretty considered and incremental approach.
Okay. Well, the numbers are different. Then is it responsible to still stick to all of those promises given that the numbers are different? Are you being irresponsible by continuing on with those promises?
No, we’re not being irresponsible. We’ll be scrutinised according to the undertakings that we’ve made and how we match those in the Budget. But we’re not giving any of them away.
Okay. Well, given that making surplus was central to your election campaign, you identified it as a target. Where does that leave you now with National claiming that it was going to have sound economic management? You’ve failed, haven’t you?
No. I disagree with that. In the first place, from an economic point of view, there’s no risk to the economy from falling a bit short. So if you imagine at a household with an income of, say, $70,000, we’re going to end up $400 or $500 short. So that’s the scale of it, and that’s not a risk to the economy. The direction is pretty clear. Our surpluses will come and they will grow, and we’ll be able to pay off debt. And that’s why we’re not making knee-jerk policy cuts in order to chase the number.
Minister, you used the analogy of weight loss, but let me use another one, the All Blacks. They set a goal to win the World Cup; they don’t. That’s a failure, and they call it that. You set a target for a surplus, and you haven’t met it. That’s a failure, isn’t it?
Well, for a lot of people, the surplus is less important than the World Cup. But the thing about the World Cup is—
But it’s your target, Minister. Minister, you set the target. It’s your target, and you didn’t get there. Isn’t that a failure?
With the World Cup, there is a final, and you’re absolutely judged on the final. With a surplus, it can take a bit longer and you still get there. You don’t get another go at the World Cup.
You’ve set yourself a time limit, and we were supposed to be in surplus and you’re not going to get there. Can you not concede that that is a failure?
No, I don’t call it a failure. It is what it is, and that is for the 14/15 year, we budgeted $370 million surplus. It looks like it will be a $500 or $600 million deficit, and the surplus will be the next year. So we’re on track.
So can you guarantee that? Surplus next year, 2016?
Well, we’ll see in the Budget exactly what’s stated and what’s not stated. I think it’s pretty important to understand here that an economy of 200—
You just said next year, that it’ll be next year. So just for clarification, 2016 – that is the target for surplus?
The target remains getting to surplus, and in the Budget, you’ll see the details of where the Government is up to with it. But I’m indicating that despite falling a bit short in 14/15, we’re on track for surplus.
Okay. Well, I’m assuming that you’re not going to need any money this Budget for housing, because last week, you said there’s not really anything left undone there. So do Aucklanders just have to suck it up and wait for supply to increase?
Look, that comment was certainly taken out of context. What I was talking about there was decisions that might be able to have an immediate impact on the Auckland market. And we’ve tried all the ones for an immediate impact, but we are flat out coming up with more propositions for longer-term impact, such as the announcement we made on Thursday – $200 million to underwrite the Tamaki redevelopment company; we’d build 5000 more houses on government land about 10km from the Auckland Central Business District. That’s a big direct intervention in the market, and we want to do more of that where we can.
Now, hang on a minute. There you offloaded 2800 houses, and I thought you had a cap on getting rid of state houses of about 2000. So is that cap gone now?
Well, no. What we’ve said is Housing New Zealand will own at least 60,000 houses, and that certainly hasn’t changed. Government remains the owner—
No, you said a cap, Minister. So has the cap gone now with this 2800 houses? The cap’s blown?
No. Government will remain the owner of the Tamaki houses. We’ve simply put them in a different government company, which has been set up specifically to regenerate that community, because it’s a very particular skillset.
Part-owner, isn’t it? Strictly speaking, part-owner. You’re not the sole owner now.
We’re in partnership with Auckland City. That’s right.
Oh. So it’s a partial disposal of houses? A partial asset offloading?
Look, we could argue back and forth about that. It’s in public ownership. What’s more important is the opportunity to regenerate a large suburb in Auckland to improve the lives of the thousands of state tenants who live in there and to provide 5000 more houses to the Auckland market, and I think those are pretty admirable objectives.
Okay. Well, we’re seeing huge population growth. In Auckland last year, we required about 20,000 new houses. We only got 5500 built. So it’s going to get worse before it gets better, isn’t it?
Well, the migration numbers have stayed high, bearing in mind about half of migrants appear to go to Auckland; the other half go to the rest of the country. But there’s pretty clear signals that Auckland City Council need to get on with the job. They are the ultimate decision-maker around the infrastructure and around the consenting for new houses. We’re giving them the toolkit to enable them to do it faster, but there’s clearly a lot more to be done, and we’ll keep looking for more tools to help the Auckland City Council to do the job they need to do.
But you accept that those figures show that it is going to get worse? We’re not anywhere near meeting demand.
That’s right. We’re not meeting demand. I certainly agree with that. Whether it gets worse before it gets better, forecasters can argue over that. We’ve got plenty to do to meet the demand that’s been there for a while. And as I said, the Government’s supporting Auckland City, trying to get them a better toolkit and making our own contribution through redeveloping our own land in Auckland.
But that toolkit has only provided— 9% of the consented housing costs less than $500,000, so only 9% of those are affordable houses. The toolkit’s not working.
Well, it’s a start, right? There used to be hardly any affordable houses in Auckland, and we’re reaping the benefits of 15 years, 20 years of thinking around planning—
So 9% is satisfactory, Minister? 9% we should feel good about?
No, I’m not saying that. But it’s better than what used to be almost nothing. We’re dealing with the legacy of a couple of decades of smart planning thinking that was designed to stop the city growing and have the effect of cutting low- and middle-income households out of the opportunity for home ownership in big parts of Auckland. Now, we’re working very hard to turn that around, as hard as we can, particularly with the Auckland Council. So, look, if there were simple answers to the problems you’re raising, which are quite legitimate problems, we would certainly execute them. Unfortunately, there’s only complex answers that take a while, and so we’re working on those.
You said you’re supporting the Auckland Council and it needs to get on with it, but you actually could do something about the number of immigrants coming in and the pressure that that puts on housing.
Well, the experience of the past is that if you want to limit migration—I which we don’t, it’s a problem of success, and we’re happy to have the problems of success. But if you wanted to limit it, you’ve got to change the rules. That takes quite some time to work through and may or may not have an effect on the numbers.
So Minister, you are happy to have— The problems that are associated with that success are pressure on infrastructure and increasing house prices in Auckland.
Well, what’s driving it fundamentally is New Zealanders not leaving. Now, I regard that as success; others may regard that as failure. New Zealanders coming back from overseas, particularly Australia, I regard that as success; others might regard that as failure.
Are you happy with the consequences of that success, Minister, which is pressure on infrastructure and higher prices in the Auckland housing market?
No, and that’s why four years ago, we anticipated that this sort of challenge might arise, and we got started, starting with a Productivity Commission report on housing. Just bear in mind, just three or four years ago, the idea that limitations on housing supply had an impact was regarded as a pretty cranky, weird idea. Now everyone agrees with it. And you need everyone to agree with it, because we need Auckland City being able to persuade its community that growth is good, that we need more subdivisions, we need more houses, we need more high-rise apartments in Auckland. Those are all pretty challenging things for the Auckland community, and the Auckland City Council has to grapple with community opinion, which often is against growth, and the pressure in the market where there’s so much demand for growth. They’re caught in the middle of that, and we try to help them with it and we’ve made some real strides, but there’s a lot more to do, as you’ve pointed out.
All right. Thank you very much for joining me this morning, Minister. We look forward to seeing what’s in the Budget.
Thank you.
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