On Newshub Nation: Simon Shepherd Interviews Sir Roger Douglas and Susan St John

The Finance Minister announced a $7.5 billion surplus this week.

It is more than double the forecast and the biggest in a decade.

So, is it really a surplus? And if it is, should we spend it? And what should we spend it on?

Simon Shepherd: $7.5 billion. Sir Roger, how much of that is real money?

Roger Douglas: There’s a cash surplus of about 4 billion, but a financial and fiscal deficit of about 30 billion.

When you say that, a financial deficit of 30 billion, what do you mean?

Douglas: Well, if you applied accrual accounting in the way they do in the private sector, then you would have to take in the debt for Super and for health care for future retirees. And if you did that, it’s well over $30 billion. If private sector people kept their books like the government, the directors would be in jail. My question is – why not the politicians?

So you’re saying the politicians are presenting misleading figures?

Douglas: Exactly. I was the person who started the accrual process. And we should have an accrual system for Superannuation and for health, and it’s at least 30 billion deficit. And that is where we should be spending the money to future-proof that. Otherwise, we’re going to be in a crisis.

Let’s get on to that in a moment. Susan St John, are you concerned the way that the $7.5 billion is presented to the public?

Susan St John: There is a surplus. It’s not as much as 7.5 billion.

Why is that?

St John: Because of the accounting change. However, it wouldn’t matter whether there was a surplus or not. We have a crisis in New Zealand, and we’re not identifying that, it has to be addressed, and that is the crisis of poverty.

So if we agree that there is some cash to spend, say $3.5 billion to $ 4 billion, what should be done with it, Susan?

St John: I think another thing to say too is when you look at the net debt position, it’s extremely healthy. And that’s without counting the New Zealand Super Fund. So there is money there, and we’ve got a situation where we’ve got families that are too poor to feed their children. We’ve got them queueing at food banks. We’ve got Christmas coming up, pressure on the NGO sector telling us that things are overwhelming in the demand that they’re seeing. This is a crisis. We should be dealing with that, not congratulating ourselves on having this extra money to store up for the future.

Right, okay. So you want to spend it now. Let’s deal with this now – you have been suggesting this week an emergency package for poor families ahead of Christmas, is that correct?

St John: We would like to see that, yes.

If you do that, if you spend the money now, then the problem still exists in 12 months’ time.

St John: If you spend the money now, you’re addressing the real problems. If you don’t, you’re going to have future social costs. So it’s false economy not to do it now. There’s no justification for letting people who do not have enough money be in that situation for year after year, until some point in the future we decide to deal with it. It’s a problem now, and it’s a problem now for the children.

Okay, so that’s an advocate for spending the money right now, Sir Roger. What’s wrong with giving money to people, say an emergency package, as Susan St John says, for people who are suffering right now, and there is cash in the bank?

Douglas: Look, we have a problem. On that I agree with Susan. But the problem is we need to solve it. And just throwing money at it doesn’t necessarily solve the problem. The central feature about disadvantage is, in fact, not just about money, it’s almost the total lack of choice. And the disadvantaged, in my view at least, need the kind of help that puts people back on their feet, able to make a contribution and make gains for themselves by what they do. And that is the package. We’ve thrown money at it. John Key claimed to have the biggest increase in income for the disadvantaged; the Labour Party came in, they cancelled the tax cuts, gave it to the disadvantaged, and the disadvantaged are not any better off. Until we get to a situation, we move away from political choice, which we had, where the politicians make all the decisions, to personal choice. We’ve got to empower this group. Their desires, what they want, is no different from the rest of us.

You’re talking about empowering this group. Susan St John, do you believe we could empower this group?

St John: We can empower this group by giving them enough money that then they can make the choices so that they’re not inefficiently queueing at the food banks for food and basics. We don’t have a well-functioning economy. We have a large number of low-income people who do not have enough money for the basics. That is not good for the economy.

There has been quite a bit of money put towards this by this present government. And also hardship assistance grants have shot up in the last year, like $140 million dollars every three months now. So money’s being thrown at it.

St John: This is showing that there’s a problem. Because people do not have enough money, they’re having to go and argue for supplementary assistance, which is stigmatising, difficult, temporary and not the answer. So about one third of beneficiaries are needing these top-ups. That shows the system isn’t working. And then there’s the other group that are ending up at food banks or going into debt. So, there’s a $1.7 billion dollar debt to WINZ which has arisen from WINZ having to fund these extra supplementary payments.

And are they going to get the money back? Is the government going to get the money back?

St John: So there’s something wrong. So what we’ve had is a $2 million dollar Whakamana Tāngata welfare report that told the government the system is broken, it needs $5.2 billion spent on it right now.

OK, so that report did come out.

Douglas: Yes, it did…

And it says $5.2 billion dollars, Sir Roger. So why not just take some of this cash and start addressing that?

Douglas: I think we’ve got to solve this problem on a permanent basis. Look, there is inequality in this country. No one can deny that. We’ve in fact, if you look at the tax report, more than 80% of households have less than $100,000 in investment capital, and how are they going survive into the future? We need a policy that solves that. The problem is, we haven’t got much time. I’d take the $4 billion of cash, there’s about $14 or $15 billion which I can identify of wasteful or unnecessary expenditure, add that together, transfer the health float into that, you’ve got about $40 billion, and empower people…

So you’re talking about giving people…

Douglas: …accounts, savings accounts.

…lot’s of money.

Douglas: Letting them spend their own money. And I believe also there needs to be a tax cut, a substantial tax cut, which you bias to the low income.

Just briefly on tax cuts, I mean, there is some suggestion that, you know, come to election year, tax cuts should be the way to go for middle New Zealand from this surplus. What do you say to that? Sir Roger first.

Douglas: Well, I think middle New Zealand have been hurt, particularly families. I mean, if I’m on $50,000 and I get a pay-rise to $60,000, there are circumstances where of that $10,000 pay-rise, $8500 is going to go to the government. That’s nonsense, 30c in tax, 25c reduction in Working For Families, 5% GST, 5% other taxes, and maybe 20c off your housing if you actually had that. And that’s the next big problem for New Zealand, and I don’t see either party addressing it. Housing’s going to be a huge problem and a huge cost to the Government.

Well, housing already is a huge problem, isn’t it? But first of all, tax cuts for middle New Zealand, Susan St John, with this surplus?

St John: Well, that’s not going to solve the problem of the low income groups that I’ve been talking about. We do have some mechanisms, we could deliver money immediately into the bulk of families that are really suffering at the moment, because they don’t get the full Working For Families package. There’s a discrimination built in, which if it were removed at a cost of about half a billion, would immediately give these families more money, $72 extra a week. So there are things that we can do that are highly targeted. Tax cuts are not.

Douglas: I think I need to take that point up. I, look, I accept we’ve got a problem. But the people who are hurting the most are the hard-working poor. Susan St John is just saying, pay if you’re on the dole, if you’re unemployed, if you’re on sickness or anything, you should get as much as the hard-working poor, or in fact more, because they generally get better access to housing. And I think one of the things we have to do is provide people with the incentive where they want to go to work. We’ve got poverty traps in there – people who are often on benefit aren’t advantaged if they go back into the workforce, they’re no better off. And they’re not stupid, the incentives are all wrong. And until you change those incentives, you’re not going to solve these problems.

Susan, can I ask you — if we’re going to use this money for immediate relief packages or changing working for families, those kinds of things, what is the long-term plan, then, do you think? That’s what Sir Roger’s talking about — long-term reform. What do you suggest?

St John: Well, we know that the government has said that it’s going to look at the Whakamana Tāngata report and that there might be a three-five year plan that we’ll hear about next year. It’s far too slow, but if we are moving in that direction, then the changes that we would suggest are not in contradiction to that direction. And they are happening sooner, and so they’re bringing relief sooner, and that is what is needed.

Well, that’s talking about benefit levels. I mean,—

St John: It’s talking about benefit levels, it’s talking about Working for Families. There are other suggestions, for example, it would be really good to carry on the Winter Energy Payment, in the short run, as an increment to benefits, knowing that ultimately benefits will be increased.

So you don’t subscribe to, say, Sir Roger saying, ‘Give these people an account or a pot of money for them to be able to decide themselves.’ You don’t believe that would be a solution?

St John: I think there are huge problems in that. Sorry, Sir Roger. I see that that does not solve the effect of marginal tax rate problem.
Douglas: Oh, it does — if you do it properly. I mean, and I’ll publish some papers in due course.

Okay, but, Susan, you have problems with that?

St John: I would have enormous problems with that.

Douglas: That’s the problem, you see. 32 years ago I wrote ‘Toward Prosperity’, and I said in there, you know, for 50 years we had this welfare system, and that what we had established was conduits to act in the areas of health and education on behalf of people, but that something had gone terribly wrong. And that no matter how much money we threw at it, it wasn’t working. I cited there that in 12 years, we’d have a fourfold increase in health, education and housing expenditure but for nothing. Helen Clark increased health expenditure — just a moment — by 64% real and there was no increase in output. In fact, productivity of doctors went back 15%, nurses 11%, and we’re saying throw money at it? You’ve got to throw money that is effective.

Last word to you, Susan.

St John: Sir Roger, would you give everyone this account?

Douglas: Yes, everyone — but the same. I can give you one example if you like.

Probably we’re going to have to leave it there because we’re talking about reforming the whole New Zealand economy, and I’ve run out of time to do that. Thank you very much for your time this morning, Susan St John and Sir Roger Douglas.

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