On The Nation: Lisa Owen interview Alan Johnson and Bill Rosenberg
Headlines:
Alan Johnson from the Salvation Army says tax changes in the budget benefit higher paid people more than lower paid.

Johnson says the Working for Families programme is underfunded by half a billion dollars and the changes in the budget have not made up for that.

Both Johnson and CTU economist Bill Rosenberg say the increase in the accommodation supplement will lead to rent rises.

Rosenberg says the CTU would like a top tax rate of 45 cents in the dollar that would start at three times the average wage. That’s similar to Greens policy at last election for a 40% top tax rate over $140,000, but puts them at odds with Labour, which has said it won’t support any new taxes. Rosenberg says “We are not affiliated with the Labour party. We’d obviously support a Labour-led government, but we’d make up our own minds on what we think is good for the working people”.

Lisa Owen: The centrepiece of this year's budget was a family package designed to help those on the lowest incomes and their children, but the finance minister, Steven Joyce, admits many thousands will still be below the poverty line and under severe housing pressure. So has the government gone far enough? We're joined now by Alan Johnson from the Salvation Army and Bill Rosenberg from the CTU. Good morning to you both.
Alan Johnson: Morning, Lisa.
Bill Rosenberg: Good morning.
Who do you think will be best off out of this budget?
Alan Johnson: I guess the benefits are distributed across the population, but we do know that the tax changes do benefit the higher paid people better— more in terms of the total value of those tax cuts going to the better paid. And feasibly, it was easier, perhaps, to look at others ways of distributing money to ensure that people at the bottom got a bigger share of it than they are getting.
Do you agree with that, Bill?
Bill Rosenberg: Broadly speaking, I think it's— the package was heavily weighted towards tax, so about two-thirds of the money involved went on tax, and what happened was in the tax part of it, the top 20% is giving as much as the bottom 60%. On the other— Because that's the biggest part of it is really the— those— the top 20% of people.
Yeah, so if you earn more, you get more of a break on the tax.
Bill Rosenberg: That's right. And so for me, the question is, look, there's a lot of hard-working families out there, low and middle income earners, who will welcome that extra money in their pockets, but the question is what we could have done better. And if that tax money had not been extracted from our government revenue and used to make that Working for Families package better and used to improve public services—
You mean don't give people—? Let's be clear on this. Are you suggesting no threshold change and just the extra revenue you're getting, the government should've allocated to the spending of— to help these people?
Bill Rosenberg: That's right. Who has a priority in government spending? I would say the priority are those low and middle income family who have not been having good wage increases. And as we talked— talking about some of the beneficiaries have been very hard up. Much better to direct that funding towards them and towards improving the public services like health and education that they very much— and housing that they very much rely on.
Alan, the minister there says, basically, the children of beneficiaries aren't being discriminated against. They're getting— They're getting the same breaks as the families of the working poor in essence.
Alan Johnson: They are in terms of the changes that are being made on Thursday, but they're not in terms of the underlying distribution of, for example, in-work tax credit and the family tax credit. We believe we should do away with the in-work tax credit and just have one means of assistance for all families regardless of whether the parents are working or not, and that hasn't been addressed, and I think it's important too to appreciate that there's still about $500 million missing from the Working for Families budget today than there was when National became government, so Mr Joyce hasn't really addressed that deficit that over the last eight or nine years of taking half a billion dollars out of that budget and they haven't really put it back as a result of these changes.
The thing is, they would say, that the changes that they've made has raised more than 50,000 children above the OECD poverty line. Now, that's a big group of kids by anyone's measures. Are your expectations just too high?
Alan Johnson: I'd dispute that. It'd be interesting to see what the results are, because they're betting a lot on this idea that you can put more money into the accommodation supplement and rents won't rise as well. And when you don't do anything about building houses, when you just think you can top up people's incomes and they can pay rent, you're misled because the reality is that rents will rise, particularly in the tight housing markets such as in the North Island, and we'll see all of that benefit going to landlords and not to the families who for whom it was intended.
So the accommodation supplement, is that an investor bonus— as it is a housing investor's bonus?
Bill Rosenberg: Well, I think they've done about the right amount to raise it after a decade of drought in the level of that, but there is a big risk. I agree with Alan that that just flows into higher rents. And if you still have big housing problems, housing shortages, then that's even more likely, because people out there, as we've seen, are competing for rental housing.
Yeah, but I want to talk about also — you mentioned tax, before we move on from that. So if you're of the belief that they should just keep the revenue from the tax and distribute it themselves rather than giving everybody a hand back, what about raising the top tax rate to get a bit more to do the kinds of things you would want to do? Do you support that?
Bill Rosenberg: Yes, we'd be up for that, and I think, you know, our tax system is not nearly progressive enough in the sense that those who can afford to pay more are not paying nearly the rates that they do in places like Australia and the UK.
Do you have a figure in mind?
Bill Rosenberg: We would say around about— at about three times average wage, it should go up to 45%.
So 45%, you're kind of in line with the Greens in some ways, because they'd like a 40% but only if you make over 140,000. That was their policy last.
Bill Rosenberg: So it's roughly the same.
Roughly the same. But the thing is Labour doesn't support any new taxes, does it? Where does that—?
Bill Rosenberg: Well, Labour is Labour, and that's what we're advocating for, because we think it would be fairer to have those higher taxes on the higher income brackets. We also think we could raise some funds from taxing wealth in various ways such as a capital gains tax or some forms of asset tax.
But the CTU is at odds with Labour in terms of that policy, then? Raising the top tax bracket.
Bill Rosenberg: Well, we are not affiliated with the Labour party. We'd obviously support a Labour-led government, but we'd make up our own minds on what we think is good for the working people.
Yeah. What about from your point of view — raising more tax by taxing those who're earning more, would you support that also?
Alan Johnson: We do support that. Our view is that if you want to make a society fairer, then you've got to do that through redistribution, and the tax system is important part of that. And in particular, it would've been good to see the top tax rates rise a bit, perhaps from 30% to 33%, simply because I think a lot of New Zealanders, even a lot of the better-paid New Zealanders believe that if we want to address things like homelessness. If we want to address things like child poverty, then it's important that other people, people who can afford it, actually pay a bit more, and that wasn't addressed in the Budget, and we didn't expect it to be, to be honest.
So the thing is it's not a never-ending pot of gold. What would you, in the Budget that you saw, what would you have canned to give that money to other things? Is there anything that you saw that stood out that you thought, 'No, I would have taken that money away?'
Bill Rosenberg: As I say, the biggest spend there was on those tax cuts, and if that money was used both to improve Working for Families and to apply itself to areas like health, which is underfunded, as we calculated, by 305 million; to education, where operation grants for many schools has been frozen; to housing, where there's really no new money for desperate needs there. Those kinds of things then we would have a much more balanced budget which is aimed at the people who most need it and the social services that we all benefit from.
I want to come to the comments about continued underfunding, but, Alan, was there anything that you would have pulled back from spending, aside from those tax cuts?
Alan Johnson: No, I think the allocations as they are are fine. Clearly, it's an incremental budget that's just added little bits to what exists. The bigger issue, I think, is around whether or not we've got a tax system that's fair and whether or not we could expect some people to be paying more tax in order to do things build houses and fund a decent health system. And those questions haven't been answered in this budget.
Bill, you have written a lot about underfunding in health spending, and you would've heard the Finance Minister there saying that we're getting gains in productivity, so we're getting more bang for our buck, so you don't have to keep increasing the spend. What is your response to that?
Bill Rosenberg: Well, our response to that is, A, we're very much in for productivity gains, and we're talking to the DHBs about what we could do there, but historically and worldwide experience is it's very difficult to get productivity gains out of sectors like health, which are very much people to people— the main cost are people. It's very hard to get productivity gains from that. Treasury in its long-term fiscal projections reckon they've been doing well if they've got a .3% productivity gain. And in a recent report, they were doubtful that the DHBs were getting any productivity gains at all.
Is the Finance Minister trying to pull the wool over people's eyes, is that what you're saying?
Bill Rosenberg: I think that's just the way of him saying they've got to suck it up.
The other thing is social investment, which, I mean, there's been a lot of questions around this. Again, Bill, you've raised questions around whether it's all new money, whose budget it's coming out of. Well, he says it's all new money, but he couldn't offer up a cost-benefit analysis. Do you still have concerns about social investment?
Bill Rosenberg: Well, there's good things and bad things in social investment. I think the idea of evaluating programmes after you've done them, started them, I think that's a really good idea. Our main concern— If you take each of those, they're just integrated into those health— into those various budgets, like into the health budget. And our calculation takes that into account, that 305 million shortage. The concern we have with the government's model of social investment is that it's a highly targeted approach. And it's like building a more efficient ambulance at the bottom of the cliff, rather than stopping people from falling off. And stopping people from falling off means improving our public services so they get good health, they get good education and so on. So a social investment approach applied to that wider programme of social— of social spending, would be much more to the point and would actually stop people getting into the kinds of problems that they do get into, and this approach is just trying to address in very small bits and pieces— doesn't take into account the causes of it.
Okay, housing, which is a big area for you, Alan. So no more bricks and mortar announcements in the Budget other than the one we had just prior to the Budget — 34,000 houses over 10 years. What would your budget number have been?
Alan Johnson: I think the 34,000 houses over 10 years is illusory in a sense too, because much of it relies on a government agency finding it in the balance sheet. There's no real commitment in capital terms to building new houses, and much of the additional housing that's been provided is into the market that would've otherwise been provided, so we'd put a question mark around whether that 34,000 is a real figure or not. Look, I—
So should they have spent that tax cut on bricks and mortar?
Alan Johnson: Look, yeah, one of the things is we've got to think about using debt in a creative way. We think that we should be building at least an extra 1000 social housing— state and social housing units a year for the next 10 years. We think that's a start. We think it would cost about half a billion dollars a year to do that. What's wrong with borrowing money to do that? Mr Joyce had an aversion to debt, but what's wrong with debt to actually build assets that improve the lives of New Zealanders?
He talked about— We talked about the 155 million, with him, for operational costs for emergency housing, and he has conceded that, you know, a chunk of that is going to be on renting rooms. Some of it's going to go on motels. Do you see any logic in that?
Alan Johnson: Look, we've always said that that was a good first step, but the reality is it's a bit like building a hospital with an emergency department and not worrying about wards behind the emergency department to actually be able to assist those people to get well again. That's what we've done in housing. We've actually provided the emergency housing, but there's nothing behind it that's going to staircase people into proper housing and where they can get on with their lives. And that's the real challenge, and it hasn't really been addressed with any budgets that have been allocated by Mr Joyce.
All right, in the— We're running out of time, but in one sentence, sum up the budget from your point of view. Bill?
Bill Rosenberg: I think it's an election year budget that is deceptive in that makes people look over here at the tax cuts, where in fact, the big problem here is in our failing public services.
Alan?
Alan Johnson: I think it's a 'business as usual' budget. I think a lot of attention's been paid to very small programmes, and— but the bigger picture hasn't changed much.
All right, thank you both for joining me this morning.

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