NZ can afford the future cost of superannuation — English

Anti-poverty campaigners like Jonathan Boston and the Children’s Commissioner use “a set of measures which you’ll never be able to satisfy," Finance Minister Bill English told TV One’s Q+A programme

“I mean, the measures that those groups use – if everyone’s income was doubled overnight, we’d still have the same poverty today as we did yesterday, because they’re using relative measures,” he says.

He also admitted that not all of these families would get an extra $25 on top of their benefit.

“I think there is analysis that shows that, for some families, depending on what other assistance they’re getting, they may get this — the $25 may be abated back a bit or their other assistance may be abated back a bit, more correctly. And so that has to be looked at, family by family, so we’re not asserting that every family will get exactly $25 but the benefit rate will go up by $25 after tax and then, for each individual family, circumstances will be taken into account," he said.

Mr English said New Zealand could afford the future cost of superannuation and voters have made it clear they don’t want changes to the scheme.

“In the forecasts we’re running, New Zealand can afford to pay the bill for super. The future governments are free to have any discussion they like with the New Zealand public, but I think we’ve learnt, as the Labour Party learnt in the last election, that what a few people — what some people regard as a pretty straightforward proposal, that is to raise the age by a couple of years, actually is not welcomed by many New Zealanders,” he said.

ABOVE: Protestors mob Paul Henry outside Sky City on Friday ahead of John Key's post-Budget speech.

RAW DATA: Q+A transcript: Finance Minister Bill English

Watch the interview here

BILL I think it just shows that we think the time is now, right, to close up the gap between welfare and work, which is quite a different argument than broader inequality in the community. So what’s happened is in the last five or six years, you’ve seen the gap between welfare and work now at the largest it ever was, so there’s still a strong incentive to move from welfare into work, but— so at the same time, we can close up the gap a bit by alleviating hardship. But also it sits along the longer-term work we’ve been doing on the kind of things that trap people in what the experts call persistent deprivation. Now, that is a long-term, five-, 10-year project, and I think we’ve come to the conclusion that some of these families just can’t wait while their kids aren’t getting enough to eat or enough clothes.

CORIN I mean, the other big criticism is that this Budget is really just about politics, that you’re responding to the political pressure to do something about poverty. You’ve done just enough, and if we look at some of the responses from the likes of Jonathan Boston, an expert on this area, the Children’s Commissioner, they’re saying, ‘Great. You’ve done a tiny little step, but it won’t actually lift many children out of poverty.’

BILL Well, look, they use a set of measures which you’ll never be able to satisfy. I mean, the measures that those groups use – if everyone’s income was doubled overnight, we’d still have the same poverty today as we did yesterday, because they’re using relative measures. We’re focusing not on some theoretically perfect world but on the reality of the lowest-income families with relatively limited resources. We’ve targeted those lowest-income families, and while the poverty experts may think it makes no difference to those families, where the margins are $5 or $10 difference between success and failure, $25 a week is going to help them.

CORIN So those experts who spend their entire life studying this area of those children in deprivation and in poverty, you’re saying they’re wrong? That when they say 250,000 in poverty and that this does nothing for the vast bulk of those, they don’t know what they’re talking about?

BILL Well, they just use a measure of poverty that’s not that useful in public policy, and there’s a number of different ways to measure poverty. We use the hardship package here and aimed at families where the MSD surveys of hardship demonstrate that there’s some basic necessities of life they struggle to get on the incomes that they have. And as I’ve said, another measure is that over time, benefits have fallen well behind the incomes of families in work, and that gap in between the two is the biggest it’s ever been.

CORIN Have you misled people a little bit with the $25 figure? I mean, there’s been a bit of analysis now that, in fact, on average because of abatements around accommodation supplements and those sorts of things that it probably won’t be 25 for most people in that situation, will it?

BILL I think there’s analysis that shows that for some families, depending on what other assistance they’re getting, they may get this— the $25 may be abated back a bit or their other assistance may be abated back a bit, more correctly. And so that has to be looked at family by family, so we’re not asserting that every family will get exactly $25, but the benefit rate will go up by $25 after tax, and then for each individual family, circumstances will be taken into account.

CORIN Is this just the first step, or will you do more in poverty as you get more money available?

BILL Well, look, that’s possible out in the future, but we’ve still got to implement this first step and we still want to persist with our social investment approach, because while we know that the path out of dependency is to get a job, there’s a lot of people in these households who at the moment aren’t able or capable of getting a job without considerably more support and without action that breaks the cycle of violence, criminal convictions, alcohol addiction, low income, no education. That’s what keeps people really locked into low incomes forever.

CORIN But you’re saying it’s possible that there could be more money for poverty in future budgets, but would that come at the expense of tax cuts as well? You’ve said tax cuts and paying down more debt are a top priority once a bit more money becomes free. Well, shouldn’t it also be poverty? I mean, where will that fit into that priority list?

BILL Well, look, I don’t think we should get ahead of ourselves here. We just made an announcement on Budget Day – $25 a week for these families on the lowest incomes, up to $12.50 for lower-income working families. We’re yet to implement all that, and we’d just consider other measures further down the track. I wouldn’t want to prejudge that.

CORIN Okay, in your speech post the Budget, you said you made the point that you could soon be spending an extra billion dollars a year on superannuation. Now, you and John Key have consistently said that there doesn’t need to be a change to the age of super; you can pay it as you go, effectively. Do you still believe that, given you could be having a bill of, what, 30 billion by 2030?

BILL Well, those increases, which at the moment I think this year’s probably 700 or 800 million, they’re built into the forecast for government expenditure. And even with those built into the track for government expenditure, government expenditure’s going to decline as a proportion of the economy slightly over the next few years. So we believe at the moment it is affordable, and we don’t plan to change it.

CORIN What about the indexing issue? Why can’t super be brought back to— for the increases to be aligned with inflation, cost of living? Why does it have to be indexed to 66% of the median income?

BILL Well, look, I’ve been part of a previous government that tried exactly that and got a very strong reaction. Look, we spent 20 or 30 years in New Zealand arguing over how we should pay for people in retirement. The last major change was moving the retirement age from 60 to 65. Since the mid-‘90s, it’s been pretty much a settled issue, and I think it’s pretty clear New Zealanders, for instance, don’t accept means testing and don’t want to go down that track, even if the Labour Party does. They’re very reluctant to see the age of entitlement increased, and they think national super should be tied to wages.

CORIN They might be reluctant, but clearly you, the politicians, are going to have to do something about it. Why can’t you take this out of the political arena, have a cross-party agreement, do something which actually deals with this without those political problems that you’ve got yourself in with those commitments that John Key’s made? What’s stopping that?

BILL Well, we don’t believe we’ve got a political problem with the commitments we’ve made. In fact, retirement income has been more settled over the last six or eight years.

CORIN Well, you’ve said it yourself on the record that you think there is a political problem and that because John Key’s made the commitment he can’t raise super, that’s boxed you in on that issue.

BILL It’s been more settled in the last 10 years since KiwiSaver came in and retirement income policy has been for a long time. Look, it’s very difficult to make—

CORIN But many people would say that’s a ‘head in the sand’ approach. I mean, you’ve got $30 billion a year. That could be the super bill in 2030. That’s what your Budget shows. I mean, that’s an enormous amount to come out of a budget, isn’t it?

BILL Well, it is. In the forecasts we’re running, New Zealand can afford to pay the bill for super. The future governments are free to have any discussion they like with the New Zealand public, but I think we’ve learnt, as the Labour Party learnt in the last election, that what a few people— what some people regard as a pretty straightforward proposal, that is to raise the age by a couple of years, actually is not welcomed by many New Zealanders. I mean, there doesn’t appear to be an alternative viable political path to changing national super. We had a long debate in New Zealand. It’s pretty settled around the parameters that they are now. We have recognised that and got on with dealing with some of the other long-term costs that Government will have to face which are more amenable to change.

CORIN One of the other things you said in your post-Budget speech was that you wanted to focus on making New Zealand resilient to international shocks and that’s been one of your priorities. But doesn’t this Budget show and the forecast show that we’re not resilient? Because the dairy commodity price situation is the same as it’s been for 50 years in New Zealand. We’re suffering and your surplus may suffer because of that dependence on commodities.

BILL Well, I think the dairy industry might have a different view. I mean, this is an industry that’s invested literally billions in improving the way that it presents its products and sells them.

CORIN It can’t do anything about world prices, though, can it?

BILL No, it can’t. And for a while I think they imagined that they could do something about world prices, but, in fact, when there’s big increases in supply, they can’t. Look, I don’t think we should be critical of this industry. It has invested billions. It’s developed a global reputation, actually, as the largest global trader—

CORIN With respect, we’re not being critical of the industry. We’re saying the reality is if the dairy price doesn’t bounce back next year, you may not reach surplus.

BILL Oh, that’s— You know, if it doesn’t bounce back, it might be a bit harder. We’re yet to see. But there isn’t some clear government action, as proposed by commentators or the Opposition, that a government can take that somehow changes that. I mean, the price is going to be what the price is. What’s important is that dairy farmers are able to adjust their cost structures quickly, that government regulation doesn’t force them to have higher costs than are going to make them competitive.

CORIN Well, I’m sure the Labour Party would argue that you could be putting more effort into diversifying the economy so that there are other industries to take the strain.

BILL Well, I don’t know quite what they mean, and if they imagine me as a minister or officials who have got economics degrees making better decisions than businesspeople out there risking their own capital will make, well, then I think they’d be in for a rude awakening. But the Government doesn’t have a tool to simply diversify the economy. The investment decisions in our economy are made by people taking risks with their own money.

CORIN Well, you do. You’ve got tax incentives. You’ve got all number of things that could incentivise those sorts of decisions.

BILL Well, a whole lot of those have been tried in the past and haven’t succeeded that well. But alongside that, and I think more positively, we are seeing some pretty significant growth in other industries. So the wine industry, for instance, is about three times as big as it was 15 years ago. The IT industry is growing at double-digit rates per year. That’s some real success. Prices of other primary products have held up pretty well, despite this downturn across a range of commodities. So I think it’s a bit more of a positive picture than some are painting.

CORIN All right, if you get into a situation where you are struggling for surplus and you’ve already cut the KiwiSaver kick-start – that got you a fair bit of breathing space, some leeway – what are the other things that you could look at? And one of them Phil O’Reilly from Business New Zealand mentioned, which is student loans. You’re paying 40 cents, I think, in the dollar, aren’t you, for every dollar leant. It’s costing the government. It’s an enormous amount of money. Could you look at putting interest back on student loans? Have you looked at it?

BILL No, we haven’t. When we lend a dollar to a student, we do write off I think something like 43 cents of it straight away because there’s no interest payable out over a number of years. But we haven’t looked at putting interest rates back. Again, it’s one of these issues which there’s been a lot of political debate. There’s been elections fought over it. Over the last seven years, we’ve left that as it is and we focused on doing the best we can with reducing the cost, and that is collecting repayments – the required repayments and the interest that is charged – off students who are overseas.

CORIN Did you look at taking more off the top end of the Working for Families?

BILL Not in any really significant way. As soon as you— You know, once you start reducing the scheme back too much, you’re pretty quickly into middle-income households where Working for Families is a pretty important part of their weekly budget now.

CORIN Bill English, thank you very much for your time.

BILL Thank you.