The Nation: Lisa Owen interviews Anthony Healy

On The Nation: Lisa Owen interviews Anthony Healy

Lisa Owen: Capital gains tax has been a political hot potato in recent years. Parties have toyed with the idea, but none have followed through, particularly when it comes to taxing the family home. But most countries have such a tax, and many financial experts here support it. Now, the latest is BNZ’s CEO and managing director Anthony Healy. He joins me now. Capital gains tax — why do we need it, do you think?
Anthony Healy: Well, I think it’s a conversation we have to have about equity in the tax system. And we certainly have a tax system that taxes them on the income that they earn, and that’s important, but when it comes to the value of assets, and that’s a big part of people’s wealth, we don’t have a tax system that works.
So is it about making houses affordable for everybody, or what would the end goal be?
No, all the evidence points to the fact that having a capital gains tax doesn’t address housing affordability. There’s a whole bunch of issues that come into that question. And if you look at, say, Australia, for example, they have capital gains tax, and they still have housing affordability issues. It’s really about equity in the tax system.
So, in terms of equity, then would you tax all houses, including the ones that people live in as their family home? Would you tax businesses? Would you tax farms? Would you have capital gains tax across the board, if it’s a fairness issue?
Well, I think this is a conversation that whoever forms government needs to have, because there are a lot of nuances to how you can apply a capital gains tax. At the moment we have a skew towards taxing equities, and we have incentives in the tax system that push people towards property, and I think to try and build the productive sector in the economy, we have to get a much more balanced approach to tax.
Then that would kind of point to across the board capital gains. What do you personally think? Is that the fairer way to apply it?
Well, I think you can take a very broad based approach to it, but one of the things that I think is really important in this discussion is we’re not talking about, and my opinion is we need to tax in aggregate more; it’s about redistributing tax. So if you were to apply a broad based capital gains tax, that gives you the ability to address other things in the tax system, like company tax, like income tax, especially for those that are more needy.
All right. Well, you’ve touched on it, so let’s go there. Personal tax — is it time to adjust those tax rates? Do we need a higher top-end tax rate than we have, in your view?
Well, I think where we really need to address tax is at the lower end of the taxation system. If you were to apply a capital gains tax where you see a lot of wealth accumulation as opposed to income, then you have room to move, and you can look at the lower income tax rate, particularly for those who are struggling to make ends meet.
So what are you thinking? What do you think?
I think you’d look at where the brackets are and start—
But what bracket, do you reckon, would need adjustment?
Well, I think most of the brackets up to at least 100,000, because you can increase those tax brackets and, therefore, people get effective tax cuts. That’s good for them. That puts more money back in their pockets. And I think you can also look at with the revenue that you’d raise, addressing things in the welfare system that might need more funding.
So if you had a go at it, if it was up to you, would you raise each of those tax brackets the threshold higher to, in essence, give people a tax break?
I certainly would.
Every single category up to 100 grand?
Up to 100 grand, yes.
Okay, because you would be fully familiar with the French economist Piketty, right, and he says that in order to redistribute wealth, you’ve got to go hard at the top end. And he even suggests 80% tax on high incomes. Is there a place for that?
Well, I think you’ve got to make sure you don’t overtax endeavour. So going and pushing up the top income tax rates as high as you can possibly go risks that. One of the other things that Piketty talks about — the biggest driver between the haves and the have-nots is wealth accumulation through assets, and that’s the one that, I think, is the core of his thesis, and that’s the one that I’ve been talking about.
So then if we want to have a truly fair system, would you not just stop at capital gains tax; wouldn’t you go for full noise and have a wealth tax and an asset tax if it’s about passing those things along to the next generation? Which is what he talks about, isn’t it?
Yeah, well, I think they’re all part of the same debate about assets, and I’m talking about a capital gains tax, not necessarily about a death tax or wealth tax, and certainly in New Zealand in particular, we don’t even have a capital gains tax. I think that’s what we should be debating.
So that’s the first step on the ladder, but do you think those other things are things we should be looking at as well?
Well, I think it’s a pretty complex set of questions that you’re proposing, and I think in a country like New Zealand where I think we have a fair society, and people would feel that it’s fair that as they accumulate wealth and as they sell assets, there’s a distribution of that through the tax system.
The thing is it’s really politically unpalatable. Hello, we’ve seen an example of it in this election. So how do you actually have that conversation and get anyone to do anything? Because some people would say it’s signing your death warrant as a politician.
Yeah, well, I do think that it’s been a topic in this election campaign, and it’s one that we want to have a conversation with whoever forms government. Obviously, Labour has put it on their agenda. National has not.
Sort of.
Sort of. But that’s something that we would want to have a conversation with any government about.
Okay. Speaking of whoever will make up the next government, New Zealand First is going to be part of it in some form. They managed to get about $5 billion of policy gains in the coalition deal in 1996. You would’ve had a look at the numbers for both budgets, I’m sure, of the main parties. Does anyone have the money to afford those kinds of concessions this time round?
Well, I think whatever policies they agree to, whatever spending promises they make, they’ll have to fund them in one way or another. And I think that running a budget surplus is important, because it gives you flexibility during tough times. And addressing tax, welfare distribution, education, infrastructure are all things that make up a budget. But I do have a principal that I think you should run a budget surplus.
You should run a budget surplus. Well, if a deal is going to cost anywhere in the vicinity of that $5 billion worth of extra spending, let’s say — let’s just run this as a scenario — could that push up interest rates into double digits? Which is what some other parties are saying could happen.
Yeah, well, I’m not going to predict where interest rates might go, but clearly, any government — and obviously National’s put some spending proposals forward as well — any government that spends more and therefore has an impact on aggregate demand and therefore inflation, so there is some, therefore, knock-on effect to interest rates.
Consequences.
Yeah.
So, you talk about running a surplus, but you’ve also talked about the fact that infrastructure is an issue, and you’ve identified Auckland’s infrastructure is creaking at the seams. You want us to pay down debt. You reckon that’s the best scenario. Keep running a surplus. So how do you pay for these massive infrastructure projects?
Well, the government’s already announced — well, the previous government announced — the infrastructure fund, and a lot of that is targeted at Auckland.
But in the scheme of things, that’s quite small.
Well, it’s quite a big number, and you can multiply that. That’s the government funding. You can multiply that via debt and public-private partnerships, some of which have already been used to build schools and prisons, and they’ve been successful.
So do you think that is the way of the future? More public-private partnerships?
I do. I think we’ve encouraged the government to think more about that, and we’ve participated in some of those. And where you can access private sector capital and government funding, it’s a way of funding infrastructure, absolutely, and it’s a very efficient way of doing it.
That is a political hot potato, though, as well, which you would be fully aware of.
I don’t think I’ve heard any party rule it out. And, in fact, Auckland Council’s talked about and the new mayor, obviously the National government has talked about, Labour’s talked about it. So it’s probably not as hot potato as it used to be, because I think there’s realities around how you fund and bring capital to projects to bring benefits to people, and I think all parties are prepared to consider that.
Okay, well, this is another thing that New Zealand First wants — is to amend the Reserve Bank Act so it doesn’t just concentrate on keeping inflation between 1% and 3%. In particular, it uses levers to control the value of the New Zealand Dollar. Is that a good thing, or is that a bad thing?
I certainly think that this point about widening the mandate of the Reserve Bank, I think in practice, that’s what the Reserve Bank does. It doesn’t just slavishly hold to inflation targets; it also looks at aggregate employment and economic activity. And in countries around the world, that’s certainly how it works.
But New Zealand First is talking about something that is more aligned with the way that Singapore controls the value of its currency — you know, indexing it against a basket of other currencies. So that specifically, could you see that working for us?
I think it’s very difficult to control, particularly in a small economy, control your currency, and we’ve seen Britain try and do that in the past and fail, so I’m certainly not a supporter of trying to control your currency. I don’t think practically you can achieve that.
Okay, while I’ve got you here, I have to ask you about ATM fees, right. So in Australia, you’ve ditched them. Your parent company has ditched ATM fees. It’s the buck you pay if you use your card in someone else’s machine other than your bank’s. What about in New Zealand? Are you going to can those for us?
Well, I think, first of all, it’s a very different environment over here. Secondly, the ATM fees in Australia were double the ATM fees of here. And, of course, now the debate’s moved from ATM fees in Australia to GE are going to close down ATMs because they’re not profitable or you’re not recovering your cost on them. So we certainly hold the view that the fee that we charge for non-customers using our ATMs is a way of recovering cost on the infrastructure. You’ve got to make sure that you are recovering the cost, otherwise you won’t have the incentive to invest in the infrastructure.
How much did your bank make last year in New Zealand?
We made upwards of 900 million as net profit.
Okay. So you still think you should charge us a buck for using someone else’s cashflow machine?
Yeah, at the same time, we have over $5 billion of capital that we have to deliver a return on, and if we don’t do that, no one will give us the capital to invest in the country in the first place. So I think anyone that runs a business of any description in New Zealand knows that you’ve got to get a return on your capital. When you look at a very large capital base, a 900 million profit is a quite a modest return on that capital. So we need to maintain that—
How much do you make out of charging people that buck each year in New Zealand?
Oh, very little, because we’re trying to recover the cost of the ATM network, and, in fact, I know that one of the principles—
As a gesture, though, because, like, it’s good enough for the Australians to get it for free, but not for us. And your parent company, the NAB, has said, ‘We’re proud of our record of making banking fairer over many years.’ So wouldn’t it be fair to treat your Kiwi customers in the same way and ditch that $1 fee?
Well, we’ve continued to review our fees over time. We eliminated honour and dishonour fees. And our view is we go to our customers and have the conversation about, ‘What are the fees that are pain points for you?’ And through that conversation — and it’s ongoing with our customers — we review fees, reduce fees, adjust fees and charges as to what our customers give us feedback. And the ATM’s not been one we’ve had a lot of feedback on in terms of a pain point.
Basically a dozen ways to tell me no, you’re not going to do it?
Well, there’s a dozen ways you can get me to say it.
But you’re not going to do it?
Well, we continue to review our fees and charges.
So not in the near future, though? From what you’re saying.
Well, as I’ve said, we’ll continue to review them, and, most importantly, talk to our customers about it.
Well, do you think your customers think it’s fair?
Well, our customers are giving us feedback on the fees that we have managed over time. That’s not one of the pain points that we’ve been getting a lot of feedback on.
Okay. Hey, we’ve been talking about pay parity this morning and salaries. It’s an awkward one. How much do you make, and are you worth it?
Well, I don’t think that the salary that a CEO makes is the most important issue when we talk about this, but certainly our board reviews salaries all the time for all our executives. I think what’s most important is, ‘Are you worth it,’ and, ‘Are you generating the returns that your shareholders would expect?’ That’s not my call. That’s my board’s call and my shareholders’ call. And if I wasn’t delivering value, I suspect I wouldn’t even be in the job.
All right. Thanks for joining me this morning. Great to talk to you.

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