Agenda Interviews Trevor Mallard

Agenda Interviews Trevor Mallard

Transcript courtesy of TV ONE and Agenda

RAWDON Last week the ANZ Economist Cameron Bagrie went on the attack claiming the government had increased the number of back office civil servants by so much they were now costing a billion dollars a year more than they did when Helen Clark took office, at the same time debate has continued to swirl over the government decision to spend nearly 1.7 billion dollars over the next five years on Kiwi Rail. So is what we are seeing from this Labour government old time state centralist socialism. Trevor Mallard is Associate Minister of Finance and Minister of State Owned Enterprises, he's with Guyon Espiner.

GUYON ESPINER
Well Trevor Mallard let's start with Kiwi Rail. Can you confirm that it is going to be a state owned enterprise with two separate companies for the track and for the rail. Is that the decision that’s been made?

TREVOR MALLARD – SOE Minister
I can confirm that it's going to be a state owned enterprise, the exact format of it is subject to some further discussions and the way that you keep transparency between the track and the rail company is something that is being worked on.

GUYON You’ve talked a lot about the advantages in terms of transport strategy, in terms of the environment in buying back rail. Are there going to be other opportunities in industry and jobs in New Zealand from having government ownership of Kiwi Rail?

TREVOR Well clearly having an efficient transport system is really important and there's no doubt that we haven't got one at the moment the way the rail's been run down, if you're on the Wairarapa line at the moment then you have old fashioned locomotives. Fonterra are looking to use rail more and more to ship things around the country, now they know that their carbon footprint's really important internationally. Our timber in the Bay of Plenty has been transport on the road when it doesn’t need to be. So those changes are important for the economy generally, but I think there are gonna be some side benefits too because as we invest in the railways we're going to develop our skills there's possibilities for example of assembling locomotives in New Zealand, now we haven't done that for a long time other than the very old ones which we take apart and put back together again as we try and fix them, and I think our newest locomotives are about your age and that shows we need to upgrade.

GUYON: Are you looking then at actually making the locomotives in New Zealand?

TREVOR: Well certainly putting them together, I mean clearly you don’t make the engines for the locomotives, they're something which are imported and some of the parts will be but there is no doubt that there's a possibility of assembling locomotives in New Zealand. It's probably a very logical thing to do from a currency perspective, from a value for money perspective.

GUYON: Where would this be done, have we got the expertise to do this?

TREVOR: Well at the moment we take locomotives apart and put them together at the Woburn workshops in Wellington and that’s a good place, the skill's there to do it, not as many skills as we used to have, not as many people there.

GUYON: So how prepared are we to do this, I mean presumably you're going to have to so some sort of study to scope out whether this is appropriate, I mean do you know how many more jobs this would create, do you know the magnitude of investment we'd need to make to get this sort of operation up and running?

TREVOR: No we don’t but Cabinet is being asked to approve a scoping study to look at that very question, so we want to make a decision as to whether it is appropriate to assemble them here as opposed to import them whole, clearly if we did that then there would need to be more skill development, the Railways Workshop does have already a range of skills there but you'd need more people, more trades people over a period of time to do it.

GUYON: Is this just a jobs creation scheme, because presumably if it was an economic rational decision then wouldn’t Toll have done it?

TREVOR: No well Toll were into – well they were never into a long term investment in Rail in New Zealand, they just didn’t buy things, they didn’t even import new things, they were into getting the maximum profit out of it and over a period of time they ran it down very very badly.

GUYON: Okay under government ownership is Kiwi Rail going to make money?

TREVOR: Well I think it's unlikely to and certainly in the early phases and part of getting that right will be how much we have to invest in it over a period of time.

GUYON: Can I just clarify that? So you're quite comfortable with the fact that we've bought that this business that isn't going to make any money and may even run at a loss?

TREVOR: Over a period of time we hope to get it back into profit, but what you’ve gotta do first of all is you’ve got to get your access charging right, you’ve got to make sure that Kiwi Rail is paying the right amount to use the tracks and what was very clear, and the Toll example is, that they had no ability to do that at all. So what you’ve gotta do is look at it as part of the transport system, the way we do with roads, I mean clearly very very heavy subsidy goes into roads, very uneven compared to rail and having something which is competitively neutral between the two I think will be the answer.

GUYON: How can it be an SOE if it doesn’t make money, I mean under the State Owned Enterprises Act one of the pieces in the legislation is that an SOE has to be as profitable and as efficient as a comparable business that is not owned by the Crown.

TREVOR: And there are a number of other objectives which sit under....

GUYON: But on that one in your legislation that you operate under at Minister it's failed from day one.

TREVOR: No. No what it will do is will be more profitable for example than Toll was...

GUYON: But you told me it wasn’t gonna make any money at all?

TREVOR: More profitable than Toll was if Toll was forced to pay the excess charges, and I think what you’ve gotta do is you’ve gotta take a look at the package of funding that goes to it, it may be for example that more of the transport funding which currently goes into roads will go into that area, it's gotta be efficient and it's gotta be transparent, and that is the key thing, the funding for it has gotta be transparent, if it's part of the transport strategy then the money will go in and it will be shown to be profitable through that route, but in the first couple of years until we get it properly sorted, on its feet, investment going well, I think we've got to expect to have a short term loss.

GUYON: Okay and this leads us to the broader discussion of state owned enterprises and the legislation that it works under because I mean there are two competing strands here aren’t there, under the legislation your sposed to make a profit, you're hopefully going to return a dividend to the government, but then we own these businesses as public we expect some sort of social dividend from them as well. I'm just wondering whether after 20 years it's time to revisit that legislation and try to ease some of the tension between those two competing demands.

TREVOR: Well I actually think it's worked pretty well, I mean as far as dividend wise we've been getting between 500 million and a billion dollars worth of dividends from the SOEs each year in recent years, they are working generally...

GUYON: There's massive variation though isn't there you get a lot from the energy companies, you look at a company like Learning Media has assets of 17 million, made a profit last year of 200,000. Now if I had 17 million put it in the bank I'd get about one and a half million back on interest alone, I mean why do we bother hanging on to an asset like Learning Media?

TREVOR: Well it's a book publishing company which was really part of the Ministry of Education for many years and it's held on to to make sure that we have security of supply for school journals and similar things.

GUYON: Okay let's look at one of the ideas that you had for getting more out of our SOEs, now as part of the economic transformation initiative, back in June 2006 you talked about SOEs expanding into new areas of business, you said that these are big commercial operations and they're perfectly placed to play a key role in helping New Zealand move towards that high wage economy that we've talked about for a long time. What examples can you give me of SOEs having done that?

TREVOR: Well quite a few and the reason we can do it is cos they're safe and secure and that’s going to be a real debate during ...

GUYON: Can we have some of those examples?

TREVOR: Oh sure, one of the examples is the massive dividend we've had out of Meridian ....

GUYON: But that happened before you came up with this initiative.

TREVOR: Well the investment happened but... I can give you quite a list. You can look at Met Services investments into the UK, they run for example the BBC weather, a lot of the shopping services use them now for their weather forecasting, do their purchasing on the basis of it, their energy companies use Met Service, we've recently bought in over there so that’s a little SOE that’s doing a lot of work. Airways Corporation is an international leader in airways and it's big into the export business in a way that it hasn’t been before. Meridian has a couple of examples, they have the world leading metering service which is internet based and allows people to make lots of choices. Probably the best one is another Meridian one where they – it's Whispertech where they do generation of power within boiler systems, it doesn’t work in New Zealand because we don’t have boiler systems, our electricity's too cheap compared to other countries, but it's a system which works which then feeds energy back into the mains out of domestic boilers, so there are lots of things that they're doing, some of which are very very profitable.

GUYON: And as part of that you also talked – when you were on this show a couple of years ago you were looking at floating the subsidiary companies of SOEs, in fact let's have a look at a clip that you said at that time.

Replay: 'Something that we could do and something that I'm quite keen on is that as the SOEs develop the new businesses especially those that are done in partnership with people in the private sector, we could well have floats of the subsidiaries so that they could be listed on the Stock Exchange, that could help give a bit of depth to our capital markets and get some transparency around those companies, and I think that would help.'

What happened to that?

TREVOR: Well so far we haven't had any.

GUYON: Two years why not?

TREVOR: Well essentially cos the main focus has been on sort of acting profitably and doing the best thing.

GUYON: Is it still your policy?

TREVOR: Well I'm happy to have floats as long as it's non core assets. I mean we're not gonna float for example the wind farms of Meridian.

GUYON: How different is that Trevor Mallard from National's policy, partial floats of state owned enterprises cos suddenly you're the big nationalist party that wants to buy everything back.

TREVOR: No, no no no no, no it's very very different Guyon, there's an enormous difference between a policy as John Key has to sell state owned assets, just not now.

GUYON: You want to sell the subsidiaries.

TREVOR: No, no.

GUYON: That’s what you told us two years ago on this show.

TREVOR: No no, the non core subsidiaries, and that’s really important that it's non core, it's not the core assets, it's not the core businesses, what it is is for example the Meridian generator which is based in Europe.

GUYON: What have you done on this policy, two years ago you were gonna help Kiwi mum and dad investors get on the share market and invest in these partially floated SOE subsidiaries, what work have you done on it?

TREVOR: There's been quite a lot of discussion and there's been not much progress mainly because none of the non core subsidiaries are big enough to be interesting to the Stock Exchange.

GUYON: So that leaves us with a policy that essentially not going anywhere?

TREVOR: Well we're not selling them, I mean we've made it absolutely clear, Helen made clear right at the beginning state owned assets are not for sale and that is our policy, John Key's made very clear that he wants to sell them and what we're not prepared...

GUYON: What you're telling me is that you want to sell the subsidiaries but you haven't been able to.

TREVOR: I'm happy for things which are not part of the core to be partially floated, at the moment there's none of those that are big enough to be interesting, but what I'm not prepared to do is to have the state owned assets either sold and leased back the way John Key has been looking at or prepared for sale the way he indicated that he would use first three years in government.

GUYON: Okay, can I look at the appointments to SOE boards. You’ve recently, well not you personally, but Diane Yates has recently been appointed, the former Labour MP to the board of the SOE Learning Media, I mean isn't this just another example of political cronyism and you're not getting the best people on these boards you're getting your old mates appointed to the boards of SOEs.

TREVOR: Well I think if you have a really good look and analyse who I have appointed to SOE boards you’ve got one of the classic ones coming on your programme soon, we've gone for the talented people, the people who can do the jobs, and if you look very carefully at the chairs of the SOE boards...

GUYON: But we're still using these people, you wanted to get Diane Yates out of parliament, you wanted to get someone else in, you're still using these people as a holding pen aren’t you for actual political favours?

TREVOR: Ah, no we're not, I mean and if you work your way through the list of the people who are on the boards that’s a really damning reflection on people, and the point that I would make is that I have made no appointment to an SOE board where I haven't had the agreement of the chair, and if you look through the list of those people who are the chairs, they're certainly not people who would describe as Labour activists, they're people who are leading business people, or people who are leading directors and know how to develop teams.

GUYON: Alright, thanks very much, that’s all from me but back to you Rawdon.

RAWDON Now I'm here with the panel. Brent Edwards do you want to pick up on Kiwi Rail first?

BRENT EDWARDS – Radio New Zealand
Yes, Mr Mallard, just on Kiwi Rail obviously talked about the ongoing subsidy that Toll was requiring from the government I think the Finance Minister Michael Cullen talked about 90 million dollars this coming year, but he's also said that he doesn’t expect rail to make a profit, what sort of subsidy is the government prepared to give to Kiwi Rail?

TREVOR: Well that’s a matter that has to be worked through as part of the transport strategy and it's something that Annette King will be working on with Michael Cullen and myself over a period of time, but if you look at the massive subsidies that we put into our roads, 12 billion dollars over the next three years, then clearly there is a lot of room for money to go into rail to make it efficient.

BRENT I mean one of the arguments has been the savings on road building or repairs, the environment in terms of greenhouse gases, do you have any estimates of what those sorts of savings will be if you shift more freight and passengers onto rail?

TREVOR: Well clearly there are lots and lots of examples of when you do shift the savings that you can make in some cases say three quarters of the greenhouse gas emissions, but a lot of it depends obviously on the weight that’s transported and the length of the carriage.

BRENT So you're confident then about the future – I mean a number of people have seen rail as old technology, you’ve been talking about economic transformation, are you confident that it can contribute to economic transformation?

TREVOR: Well you’ve gotta have a modern efficient rail system, you can't have locomotives which are nearly as old as we are as being our prime method of pulling these trains along, so you’ve gotta be modern, you’ve gotta be efficient but the economics of it are clearly changing, I mean as diesel prices keep on going up petrol prices keep on going up, rail becomes a much more attractive option both for long term freight and also for passengers.

RAWDON Just out of interest the money which you're spending on rail that’s coming out of the road building pot or does that cut out other options in other areas of policy, I dunno, Broadband and that sort of thing?

TREVOR: Well it'll come out of a transport pot of some sort, whether it comes out of a transport pot as it's currently shaped or whether we make allowance for the extra that we would have been paying to Toll is an issue that we've gotta work through.

RAWDON One of the most sound economic pursuits is obviously the Broadband line to allow people to work from home more efficiently etc, to allow business to operate more efficiently without the distance, so that won't be compromised by the spending on Rail?

TREVOR: No it won't, and actually there are some advantages of running the two of them together because when you’ve got rail routes around the place you’ve got an ability to run Broadband down them in a way that you mightn’t have otherwise, there are not a lot of consent questions when you have a rail line there.

RAWDON That means you'll need a lot of rail lines to do that, or is that just on the main routes?

TREVOR: Well no just in additional routes, where there are extra things that you want to do, you can get access that way in a way that you mightn’t be able to do across country otherwise.

NEVIL GIBSON – National Business Review
Mr Mallard I think you're guilty of playing the man not the ball in the case of the Bagry report from ANZ ...

TREVOR: I totally disagree with you, I mean I think when you're an economist you have a responsibility to get your facts right and he got them badly badly wrong.

NEVIL No he didn’t. I mean it's a subjective thing, if you read the paper ...

TREVOR: No he's not subjective at all.

NEVIL As to who you put in the front line and who you put in the back office and you might put a few in the wrong places, but the general trend I think was established there and you should be defending it, say this is what Labour stands for and we're proud of it.

TREVOR: We between 99 and 2002 rebuilt the public service, we put quite a few extra people in there to replace people who had been taken out effectively to make it efficient. What we've done since then is have growth actually slower than the economy as a whole, so we've been doing the right thing, we've been – as you develop Kiwi Saver, as you do Working for Families, we've had staff to run those, but what Mr Bagry did was that he counted front line policemen, he counted people who work with kids with special needs in schools, he counted our troops in Afghanistan as backroom people, and an economist with you know a bank with a good reputation shouldn’t get things that badly wrong.

NEVIL Just equally he also put in people in the front line who probably would be in any business back room.

TREVOR: Give me an example.

NEVIL I can't give you an example.

TREVOR: No you can't because I don’t think you can because when you have departmental expenditure it covers ....

NEVIL Any running a business has an intuitive knowledge of who's going to be serving the customer and who's providing the service that makes that possible and everyone in business knows there's a balance there and the aim of a business is reduce the number of people in the backroom, and advantage the people in the front room, that’s pretty understandable do you not want to run a public service along those lines?

TREVOR: Of course we want to run something that’s efficient, but we also want to have quality backroom services, I mean one of the problems I had when I became Minister for the Environment was that there wasn’t a group of people there who knew how to contract people properly, there were gross inefficiencies, we were paying far too much to our front line or our policy people, our core people because we didn’t have systems in place to make sure that the contract systems worked well, but the key point is that if you are going to do policies which you know clearly are at risk, Kiwi Saver, Working for Families, Early Childhood Education policies, then you’ve gotta have the staff in the backroom to make sure that they work properly.

NEVIL I think the point the point he is making and the one that certainly would resonate with the public is there's a lot of bureaucracy in Wellington that’s completely unnecessary, one would be Spark for example where half the staff get paid more than $100,000 one would think that’s ...

TREVOR: Well first of all the Spark example was shown to be wrong, used by John Key on television was shown to be wrong when people looked at the evidence John Key had been ....

NEVIL Well the evidence if you look at the annual report there was I think total staff about 85 and there was 47 were being paid more than $100,000.

TREVOR: And the Chief Executive was on the programme to indicate that that was wrong, after that period, in fact I think it was not the annual report that was used, it was some questions which weren’t very well phrased and weren’t very well answered.

BRENT So how strongly will this play out in the election campaign because National have said they’ll freeze numbers, interesting they won't cut numbers they’ve said they're just going to freeze the increase in the number of people employed in Wellington.

TREVOR: Well I mean what happens at every budget round, I'm Associate Minister of Finance, you look really carefully at departments and you say which of your new policies can be done out of current resources, you know how could we shift people from things which are less important to things which are more important, so I don’t want to leave the impression that we accept you know an ever growing public service especially in the policy area, clearly you’ve gotta make some choices, but I think when you're doing that you’ve gotta be accurate about it and the problem that I had with Mr Bagry's work is more than half the people he described as being backroom people are actually out in the front line dealing with customers and involved in that sort of action. So there will be a debate, we think that quality public services are important and we think that when you ring up IRD you should be able to get someone to answer a phone, we think that if you want to join Kiwi Saver or getting Working for Families you want to be able to link in with an individual, National Party Mr Bagry thinks those things are dispensable, we just don’t.

BRENT So you think you’ve got the balance right at the moment with the numbers?

TREVOR: Always looking at it, always looking at things that could be done more efficiently, and clearly there are some things which are what we call hump funded, if you you know set up Kiwi Saver, setup Working for Families you need more people earlier working on that than you do later, so you’ve gotta keep those numbers under review, but you’ve also got to accept that there are going to be new policies, I mean we're an exciting government, I mean Helen's made clear that we're going to have a great agenda going forward and those new policies will take both policy development and implementation teams.

BRENT Well in terms of that, in terms of new policy then I guess as Associate Finance there's this argument about the size of government in terms of the share it takes of the economy, I mean where do you sit on that, do you think there's more room to cut that amount of both spending and taxation or do you think there's room to increase it?

TREVOR: I'm not an ideologue in that area what I want is the most efficient approach that we can to the delivery of policies, and in some cases that will mean that we have to have an increase in the number of people, I mean you just can't go back to the position of the late 90s where there was slash and burn in the public service where numbers were coming down and it meant that people couldn’t get the service to which they were entitled. Very inefficient in some case, it led to lots and lots of social problems, people couldn’t get their accommodation supplement for example, and it meant that people were much poorer than they needed to be and there were a lot of bad social effects that came from that, a lot of crime I think resulted from people not getting their WINZ entitlements because WINZ was not properly staffed to do it.

RAWDON Well I think we're gonna have to wrap that, thank you very much Trevor Mallard.

ENDS

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