The frustration was palpable today as Guyon Espiner struggled in vain to get a single straight answer from Bill English, who was only prepared to twist, evade, and repeat lines:
GUYON Do you accept that for very high income earners, people on the sort of salary like your own of $276,000 a year, do you accept that giving those people taxcuts of $239 a week, you gave those people money they simply did not need?
ENGLISH Well look people on those incomes will be paying more GST, there’s various loopholes that have been shut down and the higher income groups tend to carry the burden of the extension of property taxes. But look we can’t run the whole economy on a very small number of earners on quite high incomes. The big shift here is giving us the result that about three quarters of New Zealand earners now have a marginal tax rate of 17½%, so if they work another hour of overtime, they put another dollar into KiwiSaver, that’s now taxed at 17½%. So we’re aiming at incentives right across the economy. We believe we have achieved a good balance of fairness between people lower and higher on the income scale, but in the long run it’s about lifting the economic growth so they can all get ahead, not just about the one off cash on the day.
So, English thinks it’s ‘fair’ to take tax off himself and put it on ordinary Kiwi families.
GUYON But you could have addressed that issue though, you could have lifted thresholds to where that top rate cuts in, left the top rate there and actually moved the threshold out further, and that way you wouldn’t have given those hundreds of dollars a week to people who already have very high incomes.
ENGLISH Well that would depend on how they structured their affairs. I mean one of the problems of the last ten years has been a top tax rate out of line with trust and company rates, that’s allowed for a lot of restructuring. Inland Revenue tell us that among their wealthiest taxpayers only half of them actually pay the current top tax rate, which remember cuts in at $70,000. So there’s people with millions of dollars of assets who aren’t even paying 38 cents on income over $70,000. So look there may have been some kind of symbolism in it but we don’t believe…
Um, the rates aren’t aligned now, Bill. In fact, when the company rate drops to 28%, the gap will be as wide as ever. And if half of the richest Kiwis no paying the top rate is the problem how is making none of them pay it the solution?
GUYON So what have you done to actually clamp down on someone like that. I know that the investment property has been looked at, but that affects a lot of ordinary Kiwis as well. What about someone like Sam Morgan, what is there to stop someone like that no paying much tax at all?
ENGLISH Well I have no idea about Mr Morgan’s circumstances and I’m not an expert on tax structure, but what I can tell you is that as a result of the changes we’ve made, for instance, there is not much point in channelling all your income through trusts to avoid the top personal tax rate, because now those rates are the same. And people like Mr Morgan will now be able to focus on how they’re using that investment to grow the economy and create new jobs, and not so much energy on structuring their affairs so they don’t pay the top tax rate.
A finance minister, who has just made the biggest tax reforms in 25 years says he doesn’t understand tax structures.
GUYON Sure you’ve aligned the top rate and the trust rate, but that’s in some ways rewarding tax avoidance with a tax cut, or as someone put it this week, it’s a bit like tackling doping at the Olympics by ensuring everyone takes drugs.
ENGLISH Well it isn’t, because it’s part of a package that is about improving the incentives right across the board. I mean let’s look at what’s happened for someone who’s earning around say $48,000 just under the average wage. Their marginal tax rate has now halved. So whatever’s happened with Mr Morgan, tens of thousands of New Zealanders are now in a position where two or three years ago they were paying 33 cents in the dollar, now they’re paying 17½ cents in the dollar, and we happen to think that the incentives for those Kiwis, which is the vast majority, are more important in the economy than a handful of people at the top end.
More dishonesty. A person on $48,000 was never paying the 33%, it only applies to earning above $48,000. And the majority of taxpayers have incomes below $30,000.
GUYON What impact Mr English does this budget have on the gap between rich and poor, does it increase it, does it decrease it, or does it stay about the same?
ENGLISH Oh it’s about the same, given the shortcomings of the various measures…
GUYON So it’s important to you, but you haven’t done anything about it, with respect. That’s what you’ve told me, you’ve told me that it’s important to you, but you haven’t done anything about addressing that in this budget.
ENGLISH No, what we’ve done is we’ve achieved a shift in our tax system without making that problem significantly worse in a static sense.
Oh dear, ‘not made it significantly worse’, that’s the limits of National’s ambition for creating a more equal society.
GUYON Okay what about one of the other areas that, for people with small children, could erode some of these gains. You’re taking 400 million dollars out of the early childhood education sector, could you not in 70 billion dollars worth of government spending, find a better area than small children to actually take money from?
ENGLISH No we’re not taking 400 million dollars out of the early childhood education sector. What we’re dealing with there is a sector where for roughly the same number of children, expenditure has gone up 300% in five years from 400 million to 1.2 billion. When we came into this budget, it was going to go up another 200 million dollars of roughly the same number of children and same number of centres. So what we’ve done is, the increase is still 107 million, so it’s going from 1.2 billion to 1.3 billion, we’re not taking money out.
GUYON Okay so parents Mr English will not have to pay more? Because the fear is, and I want to get a straight answer on this, the fear that we’ve heard in the days after the Budget is that parents might have to pay between $20 and $30 a week more. Are you telling this morning that parents won’t have to pay any more money as a result of the changes you’ve made to this sector?
ENGLISH There’ll be some changes in the subsidy regime and it depends on how early childhood centres whether they pass it on.
GUYON Yeah but you must have done the research Minister and figured out whether you thought that they would need to pass it on. What is your estimate of the increased costs if any, for the average parent under the scenario? You must have looked at that before you took this money out.
ENGLISH Well I wouldn’t put an estimate on it, what you can say is that the early childhood centres have got three times as much government money now as five years ago, it’s my personal view they’re unlikely to have to pass it on.
So, English has gutted early childhood education and not done any research on the effects but confidently predicts everything will be OK.
GUYON Can I look at the economic impact of this budget now. Treasury estimates, the Budget document itself, says that economic growth will have an additional nearly 1% over seven years as a result of this tax package. I mean that’s hardly transformational growth is it?
ENGLISH Well it’s a pretty conservative estimate, the IMF have put out some recent work that shows that you might get about 1% lift in the level of GDP over four or five years, so a bit sooner. I think what’s important here is that there aren’t too many there aren’t any other mechanisms actually, certainly no policies that have been put in front of me as a finance spokesman for a long time, that would lift growth by that much. That is actually quite a big impact, that’s tens of thousands of extra jobs.
This is pixie at the bottom of the garden stuff. Treasury says the tax changes may produce an undetectable amount of extra growth (maybe enough to eventually reverse the added concentration of wealth in the wealthy that the Budget has created) English blithely assumes it will be better.
GUYON Okay well let’s talk about the future in the last few minutes that we’ve got in this interview, because I know you’ve ruled out asset sales in this term. You said that in the election campaign, you’ve said you won’t break your word on that, but what you did do on Friday was float the idea of partial floats for state companies such as KiwiBank. That’s a message that you’ve been saying for a number of years now, so presumably you favour the policy of floating some partial stakes in our state owned companies?
ENGLISH Well look it’s an option that may or may not work, actually the government hasn’t done any work on that.
It won’t work because it never has worked.
GUYON Do you favour it though Mr English, do you favour it? Because you’ve said it a number of times. Have you changed your mind, or do you still believe that we should give New Zealand investors some stake in those state companies by floating them on th4e sharemarket?
ENGLISH Well look as I said the government hasn’t done any work on that. What we’ve been focusing on is managing the 200 billion dollars of assets that the government owns, and as I pointed out in the Budget, they’re going to grow by 35 billion over the next four years, the government is investing about six billion a years, our focus has been on doing a better job of managing that 200 billion of assets.
GUYON Yes but you floated that idea on Friday. I mean you’re an intelligent and considered man, you wouldn’t have done that for no reason. You floated that idea, do you believe in it? That’s what I’m asking, a straight simple question. Do you believe in it?
ENGLISH Well it’s not a matter of whether you believe in it, that was a bit of speculation, the government hasn’t done the work.
We’ve been here with National before. Throw out an idea, deny all, try to soften up the public with increased mentions of the idea, set up a hand-picked taskforce to investigate and supply the answers they want.
GUYON Well it was your own speculation though Minister, it was your own speculation. You said if I went out into the market, I’d have a lot of people who are keen on this idea, you said KiwiBank needs capitalisation, needs money, a good place to find that is from Kiwi mums and dads. I’m asking this morning whether you agree with yourself.
ENGLISH Look the government simply hasn’t done the work, certainly hasn’t done the work on that proposition. I get asked all the time by people when or if they’re going to have good opportunities to invest somewhere, anywhere, because finance companies have been in trouble, they’re not sure about the sharemarket, they see the housing market now going sideways, it doesn’t look quite the sure bet that it used to. And actually the more important issue there is getting financial market regulations sorted out, so that as the economy recovers people have the confidence to get back into investment, so we don’t have all this cash sitting in the bank when it could be creating jobs.
I can’t believe that the Minister of Finance thinks savings just ‘sit in the bank’. Doesn’t he understand that the banks lend it out to businesses and home buyers? It appears not, which is pretty concerning to put it mildly.