Business Leader On The Budget: The Nation

'THE NATION'

BUDGET PANEL
Interviewed by SEAN PLUNKET

Sean We're looking at this year's Budget. Well we've heard from the politicians now it's time to hear from well – the players. Those who will have to make the Budget work. With me here in Auckland is the CEO of the Bank of New Zealand Andrew Thorburn. So is Steve Anderson, Managing Director of Foodstuffs New Zealand, also that’s the parent company for Pak'nSave supermarket chains and New World. We also have Deloitte Chief Executive Murray Jack in the studio with us. And from Wellington we're joined by Kerry McDonald chairman of the Savings Working Group.

I want to start with you Kerry McDonald. Your final report to the government said we really had to take some drastic action if we weren’t going to end up like Spain, Portugal, Ireland, Greece. Do you see the sort of action you were calling for in this budget or not?

Kerry McDonald – Savings Working Group Chairman
There's some of it there but my view is it doesn’t go far enough, I think overall it's quite a well crafted budget, but the real challenge now is the extent of the problems facing the New Zealand economy, and it's not just a few and it's not just about is it going to be a double dip recession, it's about fundamental structural problems that have to be dealt with. So the high debt level, lack of savings is one aspect. The fact that the tradable goods sector turned down in about 2005. Household incomes for most households have not been growing. It's pretty fundamental stuff and I don’t think the Budget goes far enough in addressing all of those issues.

Sean Andrew Thorburn from a banker's point of view do you agree with Kerry McDonald, we haven’t seen any policies or any signals that structural change to get the economy right, and I find it hard to find anyone who says we've got the balance of our economy right, or it's right now primed for growth. Are you disappointed there was no structural change or signals of structural change?

Andrew Thorburn – BNZ Chief Executive
Well look I agree with Kerry that it was I think a sound budget and I think given the circumstances of what we've been facing with the global crisis, the recession, two earthquakes, I think the government has tackled something very important which is government expenditure. I think that’s a crucial issue, but I do agree there's some things which are left unaddressed, and the big one is savings and capital for the economy.

Sean Steve Anderson it makes some pretty epic or heroic assumptions about growth. That all depends on economic activity and people spending. You're in a business that is at the very sharpest end of that. What are you seeing in the supermarket trade. Do you think that we can have a you know 4% growth in the next couple of years?

Steve Anderson – Foodstuffs NZ Managing Director
Really challenging numbers to hit. 2008 is when New Zealand as a nation changed from consumers to conservers, and they’ve been in that ever since. So any time they're making decisions in regards to even small purchases they're thinking far more about it, they're still in that mode.

Sean And you see that in the supermarket aisles, the way people spend and think about their money?

Steve You see it in terms of our house brand share goes up, people going to value and promotions far more. Until the fuel prices came up they were shopping around more and that’s now abating quite a bit because people are travelling shorter distances because it's costing them more to fill their tanks up. But people are still really really thinking about their purchases. I think there's quite a period of time, this budget hasn’t given them any incentives to kick out of that. If anything it's going to continue to do that.

Sean So we'll still be a nation of budget shoppers as it were?

Steve Ah no, conservers rather than consumers.

Sean Murray Jack, looking at incentives for people to be entrepreneurial, to drive the development of businesses and drive export growth, and growth in the tradable sector in particular, do you see anything in the Budget that achieves that?

Murray Jack – Deloitte – NZ Chief Executive
No Sean there's really nothing in this budget, those moves were in last year's budget, primarily around the change in the tax structure which obviously cracks incentives to work and to be entrepreneurial and you know to make your way in the world. This budget has left that relatively untouched, but it hasn’t provided …

Sean So that’s a good thing?

Murray So that’s a good thing. It hasn’t provided anything new in terms of you know encouragement or incentives for people to get going.

Sean We cannot forget that it's an election year, which obviously has an influence on how far governments are prepared to go. Do you hear any signals, and I'll start with you Kerry McDonald that the sort of issues Roger Douglas raised, the issues of government spending as a proportion of GDP and things like Welfare are going to be addressed after the election if National wins?

Kerry I'm aware of quite a bit of work that’s being done, some of it following from the Savings Working Group, and other for other reasons which is focusing quite intensively in getting better value for money out of the state sector. But the critical thing for me is that unless the engine of the economy, the export sector, the tradable goods sector get moving, the economy is going to continue to stumble, and unless we've got a strong economy the ability to sustain the public sector expenditure on Health Welfare and Education and so on, is all at risk. So we're actually looking at some pretty fundamental challenges now.

Sean Andrew Thorburn do you expect more from this government post election?

Andrew Well I think Sean we have as a country and as an economy a huge amount of potential. I really believe that. But there are some issues that are not addressed yet, and they need to be addressed by a government. There's no question about that. I think the big issue is as Kerry's been alluding to, increasing the rate of savings and incentives for savings. Now what that will require is Kiwi Saver to be expanded dramatically. It will require tax changes to discourage incentives in residential property, and it will require a strong debate around national superannuation, which in the long run isn't affordable.

Sean And we heard Bill English there, he said oh no no well Labour and we agreed not to touch it and we're not going to. It would seem to me that is the elephant in the middle of the room here that no one's talked about.

Andrew I think you're absolutely right. So you’ve asked me as a banker, and as a leader, what do I think needs to be addressed. There's three things. They're big, and they need to be debated. Now I think a government has to turn to that and they need to go back to Kerry in next year's budget, dust off his Savings Working Group Report and implement most of them, because that does answer that one around savings and capital generation. If we don’t have businesses growing then we're not going to create jobs, and we're not going to improve medical and health services and education.

Sean Kerry, your report's been largely ignored hasn’t it?

Kerry No I don’t think it has. I think it's had quite an impact on thinking, it's had quite an impact on some of the projects that are being done within the bureaucracy now, but it's the tension between an election year….

Sean But none of it, and certainly not in this budget has been implemented Kerry?

Kerry Oh some of it has, but a lot hasn’t, you're quite right with that. So I wouldn’t say it's been ignored, but it hasn’t been picked up to the extent that I would have thought appropriate.

Sean Are you hopeful it might be if National wins the next election?

Kerry Ah yes.

Sean Murray Jack, does it need to be? Do that issue, the issue of Super, the issue of savings, really need to be addressed in an absolutely meaningful way?

Murray It's fundamental. We actually can't make progress unless there's a much better grand design around savings, retirement savings particularly. You know you can't go to compulsion on Kiwi Saver and not touch National Superannuation, it just doesn’t work, so you’ve gotta deal not just with the entitlement age but with the means testing issue. You know if you look at Australia they’ve effectively privatised retirement savings, the government's role in that is now much less. They heavily means test the government pension, and so they’ve really moved that to the private sector to individuals. That’s the path we need to go down.

Sean Steve Anderson, the problem is if people are saving more they're spending less in your supermarket and there's less money going round in the economy.

Steve Yeah to some extent that’s true but can I make a point about – there's a real opportunity in the budget and that’s around trust and equity in the equity markets. A lot of New Zealanders don’t trust equity markets because of their experience with the global financial crisis or previous share drops, and particularly finance firms. The partial privatisation of some state assets is a real opportunity to get New Zealanders back into entrusting the equity markets again. If it's done right, and if it's – you know we definitely wouldn’t want to see a cornerstone foreign ownership type of thing but if you could structure it so that ma and pa New Zealanders can get back in owning shares in things they understand then that’s a good step forward. Savings is not just about putting money in the BNZ, sorry Andrew.

Sean On its own then just very quickly from all of you, a good budget yes or not. A budget that at least gives an indication of a brighter future?

Andrew I think it's a sound budget Sean given all the government had to deal with, but there's two or three big issues that need to be addressed.

Murray It's steady as it goes, you know some pressure in some parts on government spending, but the big issues are not done.

Steve Sound is a very good word but hard to get those numbers and we need collectively to work very hard to get them.

Kerry Yes, I think Andrew put it very well, but the point I'd emphasise is that waiting is not an option. Every week that goes past we're borrowing more, each dollar of debt is a burden, the interest has to be paid, it's affecting interest rates, it's affecting exchange rates and it's affecting the ability of the economy to recover.

Sean Thank you very much indeed Kerry, thank you also to Steve Anderson from Foodstuffs, Andrew Thorburn from the BNZ and Murray Jack from Deloittes.

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