Finance Minister Steven Joyce has defended criticism that his maiden budget this week was stepping on territory traditionally held by the Labour party, saying family tax credits had been a part of New Zealand for decades.
Jessica Mutch: I want to start off by asking you – in 2008, you talked about a brighter future. Is this the kind of budget that you had in mind when you talked about that brighter future, and did you have Working For Families wage subsidies, effectively, in that plan back then?
Well, a couple of questions in there. The first one is – a lot has changed in the meantime. We’ve had the global financial crisis. We’ve had the Christchurch earthquakes. I think in the context of what New Zealand has gone through and in terms of what the world’s gone through and say yes, because we’re performing as a country; a lot better than the UK, the US, Australia, Canada, Europe, Japan at the moment. We’ve been growing for the last sort of five or six years, and it looks like we’re going to grow for another four or five years. So it’s a work in progress. But I think most Kiwis would look around the world and think, actually, New Zealand’s doing pretty well relative to other countries that we compare ourselves with. So that’s good. In terms of Working For Families, well we’ve always had in this country, long before Working For Families, some form of family tax credit when–
A wage subsidy, effectively.
For people that are bringing up young families. We’ve always had it. You go back to when I was a kid, it used to be the family benefit. And it’s changed over the years. There are other aspects of Working For Families that we haven’t always had, but we’ve always had some form of extra tax situation for parents with young families, and the current method is indeed that family tax credit.
National always talked about Working For Families in a negative way when it first came out with ‘communism by stealth’ – that phrase had been bandied about. Was this a bit of a dead rat for you to swallow, having to include this in your budget after nine years?
No, no. Not at all. There’s always been some form of family tax credit, and, actually, I think we’ve improved it. It’s very complicated. There were five sort of different rates for different aged children, and what we’ve said now by standardising those, the first child, then if they’re under 16, the parents get an extra $9 a week, and second and subsequent children, either $18 or $27 a week. So everybody knows where they stand, because there’s the first rates for the first child, and then there’s rates for the subsequent children. But as I say, it’s the current mechanism, but it’s actually the concept’s been around for years and years and years in terms of providing an extra tax break for parents as they bring up young families.
But this can’t sit comfortably with you, though, can it?
No, actually, it completely does, because, as I say, we’ve always had – and I see the logic completely in terms of giving parents a bit of help – extra tax breaks, if you like, while they’re bringing up a young family sort of I think. New Zealanders endorse that approach. Perhaps not everybody, but most people do.
You’ve been given the title for this budget ‘Labour lite’. With your campaigner’s hat on, was that the point?
No. Not at all. The commentators will say all sorts of things, and I’ve seen people say it’s too much; it’s not enough; it’s too much here; it’s not enough here.
But what about that Labour lite phrase?
It completely doesn’t come to mind at all from my perspective. It’s that we have the room to do some things that we’ve wanted to do for a period of time. We’ve been talking about tax changes since before the 2014 elections as plenty of people have pointed out to us. But this is the first opportunity that New Zealand has had to do that, because we have a strong and growing economy which is delivering strong surpluses, and in this budget, we’re able to invest in infrastructure; we’re able to invest in–
— Tim McCready 🇳🇿 (@Tim_McCready) May 27, 2017
But it does make it easier, doesn’t it? If you can go into that Labour territory a little bit, four months out from an election, your MPs can stand up and say, ‘Well, actually, we’re doing this; we’re doing this; we’re doing this.’ That must’ve been on your mind when you were crafting this.
No. I just don’t think of the budget in terms of the election cycle, which may sound strange–
You don’t think about the election?
I mean, you’re not driving it for the election, because I’m strongly of the view that–
But that must have been in your mind. Come on.
No. I mean, I know the election’s coming up, but I’m strongly of the view that, that actually, you don’t change your approach just because it’s election year, and I think we’ve shown all the way through nine different budgets that actually we haven’t taken account of where we are in the cycle, because I think the public are smarter than that. I think they look through any sort of election-year approach and think, ‘Okay. Where is this heading overall? What’s the trend overall? And are they making the sort of decisions I’d want them to make in the same situation?’ And I think that’s where, hopefully, most people will see the balance.
Let’s have a look at the tax brackets, then, because you’ve adjusted those. Why not change them straight away? Why wait until April? Because doesn’t that look like this is an election year bribe?
I think it’s completely impractical to change them. The first thing I asked the IRD when I started to talk about this was, ‘Can we do this stuff in October?’ For the same sort of questions, before the election date had been decided. And they said, ‘Minister, we’re in the middle of this IRD business transformation. Whoa. Here’s a hundred different reasons why this would be a bad idea.’
You could’ve done it, though, right?
We might have been able to push it. But as it turned out, it may have even looked more cynical to people, because it would’ve been seven or eight days after an election, and people would say, ‘Well, that’s even more cynical.’ So 1 April is normally the time we change, and that’s why it’s there, and literally because the IRD is in the middle of one of its biggest ever system changes, and they said, ‘Just don’t try and break us on the way through.’
The accommodation allowance was another big spend in the budget. Will that simply be passed on to landlords, and is there anything wrong with that?
No, I don’t believe it will. We tested that pretty thoroughly with MSD. The last time there was a significant change was 2005. And look it’s the theory of the opposition always that, ‘Oh, the accommodation supplement always goes to landlords.’ Well, in effect, it does, because it subsidises people’s rents that they would otherwise be paying themselves. But in terms of ‘does it push up rents?’ MSD’s done some work which we asked them about after the 2005 – they’ve done it more recently – ‘Well, did it push rents up or not?’ And they couldn’t find any evidence of that.
But you do admit that that obviously will go into the pockets of landlords.
Well, no, because essentially only the people–
Because it’s helping people pay for their rent.
Well, actually, people are already paying for their rent. What it will do– They’re paying their rent now. What it will do is go into their pockets, and they’ll have more after their housing costs, and that’s really important. For somebody with a couple of young kids in West Auckland or South Auckland, could be getting up to over $100 a week more depending on their circumstances, and that’s a big lift to support them as they bring up their children. And I have to say it’s one of the things I’m most proud of in this budget – is that we’re getting the opportunity to do that.
When you look at the things that we’ve talked about this morning, effectively a wage subsidy and a rent subsidy – people aren’t getting paid enough, and they’re not able to pay their rents. Do you feel like there’s something fundamentally wrong with the system if the government has to subsidise these things?
Well, a couple of things. The largest amount is actually around tax changes – so the threshold going up from $14,000 to $22,000, providing $10, $11 a week to anybody earning within 22K. And then the threshold adjustment for $48,000 to $52,000, those are the biggest elements of the package, and they are the most important in terms of that. But actually we are keen as I say to see young families do a bit better and particularly those on lower incomes.
But surely the government have to help with that, though.
Well, ultimately, a stronger economy helps with that most of all. And we’re seeing that with increasing wages and increasing employment.
But not enough, though, is it?
Well, I think it’s definitely a work in progress. But we’re doing better than nearly everywhere else in the world. So in terms of developed countries, we have the second highest employment rate across the whole of the OECD. So that’s good progress. And that will bring to bear on wages and so on over time. And as wages go up, these support packages abate. So the more you get, it comes off your Working For Families or your accommodation supplement. And absolutely that’s the aim of the exercise is to get us to that point. Which is why we put so much money into this whole tech area, you know, lifting all those tech jobs and that sort of thing.
In terms of going forward, though, if you stay as the Finance Minister, when would you see the Working For Families come down and the supplements come down? Can you see a time when we’re not going to need those any more, that the economy is in such a situation?
Well, you’ve already seen that a bit. So it peaked at, sort of, 2011. And then as the economy’s recovered, the number of people dependant on Working For Families has declined. And the Labour Party see that as a failure; I see that as a success that we are actually having less people dependant on Working For Families than before. And as their incomes rise and more people get into jobs, that’s exactly what’ll occur. So I think we are seeing that. The evidence is that we’re seeing that. And I’m sure that we’ll continue to see that in New Zealand, particularly if we keep investing in areas of the economy that are going to be the higher paid jobs of the future. And that is in that tech area, the innovation area. You know, you had Peter Beck’s rocket go up this week. I mean, that’s just the biggest example of some of the stuff that New Zealand companies are doing right now.
When would you like to get rid of Working For Families?
I don’t think you’d ever get rid of it, for the reasons I was talking about before, in that we’ve always had a method of supporting young families during that period where, you know, perhaps lower incomes.
But that’s surely a sign that the economy isn’t working if the government needs to provide that support to working families.
As I say, it’s been going on for 50 years. It just basically says that when you are bringing up a young family, you have probably more direct needs than somebody who’s perhaps single or their families are not at home. People actually accept and I think support the idea that in effect, they pay less tax over that period.
But surely, that would be the definition of a success as a Finance Minister to not have to have those any more.
That’s a comparative thing, though. It’s basically saying people outside of those situations in effect pay a bit more tax, and somebody with a younger family pays less tax. And as I say, I think that’s a political view that most New Zealanders support.
This must’ve felt quite good, this budget, for you, because it was a bit of a catch-up budget, wasn’t it? You’ve been scrimping and saving, or Bill English has been scrimping and saving, and this money now had to be spent, didn’t it? It was catching up.
Well, it’s not catching up. It’s actually the first time we’ve had the opportunity, because we haven’t had the opportunity before. And as I say, we’ve been talking about it for three or four years. But we now had the capacity. We’ve got rising surpluses, an opportunity to do some things. But it’s important to note that we’re also doing a very, very big infrastructure spend. And between the families’ package, the investment in public services and the infrastructure, the amount of cash we now have left over the next four years is virtually nil. So there’s not a lot of wriggle room beyond this. And the infrastructure spend is massive. It’s $32.5 billion that this government will spend on new capital infrastructure over the next four years, that’s 40 percent more than the last four years.
Let’s talk about that a bit more. Because Phil Goff came out, the Auckland mayor, and said it doesn’t seem like it’s visionary to spend.
I think he might be being a little political.
But with his Auckland mayoral hat on.
And his Labour Party membership in his back pocket.
But, you know, you’ve got to say as the mayor of our biggest city, his opinion that it wasn’t very visionary and didn’t really seem to help his city.
I think I’ll skip the opinion and focus on the —
So, what do you say to that? Was it visionary when it comes to things like infrastructure? For a lot of Aucklanders sitting in their car, they think, ‘Ooh, what are you doing in the short term about this?’
Absolutely. Well, there’s actually construction work on every single motorway bar one in Auckland right now. And that’s one of the reasons – not the only reason, but that’s one of the reasons – it’s slower. So Phil was arguing, you know, sort of complaining about the time it took to come in from the south, well, one of the reasons why we’re spending $250 million widening this other motorway by 50% in each direction. So that’s a very big investment. It’s also in that budget the east-west link that gets the eastern suburbs out to the airport and to the airport suburbs. That’s very important. And also you’ve got the CRL, which, of course, is the really big-ticket item, and there’s some really significant money going into that. So actually, if outsiders look at Auckland, they might say, ‘Gosh, you guys are getting a lot.’ But they should be getting a lot.
But can you see why it doesn’t seem visionary, though? Can you see why it just seems, ‘Yep, we’ll build a new road here, a bit of this here’? Can you see why he said that?
Well, no, I don’t even know why people would ever, sort of like what’s innovative, what’s visionary?
Something innovative, something different – something that we haven’t thought about before now that we’ve got this extra money.
Well, what we need to do is keep chunking away on the things that make the difference. And actually, we could all talk about, you know, monorails to wherever or whatever the current thing is, but actually, it’s building capacity on our roading system, on our rail system. It’s the hard yards that is required to do. And there are more projects coming.
From private funding? Is that how that will work?
No, first there’s the Auckland Transport Alignment Project, which both the council and the government bought into. We haven’t allocated all the money that’s sitting out there over the next few years. There’s significant sums of money. We’re in the process of talking with the council about the next project I suspect –
More private funding?
We’ll have a combination of private and public funding, I’m primarily talking –
For just roading projects or for infrastructure projects?
I’m primarily talking about public funding here, at this point. You know, there is discussions going on about what the next projects are, so perhaps Phil’s making a bit of a bid for more visionary stuff which is still to come. But also, actually, we do need to keep bringing in further private-sector investment as well.
For roading and rail and things like that?
And water infrastructure.
So we would see private ownership of that? That’s what you’re saying?
Well, not necessarily long-term private ownership, but potentially private funding of some of the expansions that we’re looking for. Because as I say, we’ve got the biggest ever amount of money that’s ever been spent in New Zealand on infrastructure over the next four years. We’ve got councils having to spend quite a bit on infrastructure. And I would argue that we should bring in more private-sector funding, and I’m going to talk more about that in the next few weeks.
We’ll have to leave it there, but thank you very much for your time this morning.