The Nation: Lisa Owen interviews Steven Joyce post-budget

Finance Minister Steven Joyce says his budget treats everyone fairly, but says it’s aimed at families with children and low to middle incomes.

Joyce says 6,000 families will be worse off after the budget by up to $3 a week. Another 200 families will be worse off by more than $3 a week, and there’s a $2million fund set aside to compensate them, but they will need to apply for that compensation.

Asked about suggestions the books are in a good state and he should have been more bold, Joyce says “we don’t actually in fact have a whole lot of headroom to do more” and “over the four year period from this budget through to 2021, we actually have no spare cash.”


Lisa Owen: Now, Finance Minister Steven Joyce has fired the starter’s gun for the race to September 23, delivering a budget described by him as delivering for New Zealanders and described by some as an election bribe. It outlines billions of dollars in spending for families and infrastructure, but a lot of it had already been announced, and you won’t see much of it unless National is re-elected. Steven Joyce joins me now in the studio. Good morning.

Steven Joyce: Lisa, how are you?

Let’s start with one of National’s flagship policies, which is social investment. $320 million unveiled across seven portfolios, I think it was. How much of that is actually new money?
It’s all new money.

Absolutely all of it?
Absolutely all of it.

Because people say it’s a little confusing. Some things are listed in health, and some things are listed in education.
It’s definitely summed up as part of each individual portfolio, but in terms of new money, it’s exactly what—

Every cent is new?
Yeah, that’s right.

Okay, so, you’re all about targeted spending and improving children’s futures by spending money now. So what’s the cost-benefit ratio for every buck of that 320 million? How much are you going to get back in savings?
I don’t have the exact figures for each of those 14 separate initiatives in front of me, but they’ve been through a complete social investment panel, they’ve been challenged by their peers, challenged by the Treasury, and the whole thing’s gone through a process. And what we did with those social investment ones, we said if you passed the test, if you’re able to demonstrate the return of investment from those programmes, then, actually, you won’t get subject to the same questions as other parts of the expenditure. And so they’ve gone straight through the process, if you like. And it’s been very rigorous, because there was something like 20-odd, 25, I think, maybe even 30, original proposals, and only those 14 made it through.

Yeah, and you say it’s rigorous, but have you done a cost-benefit analysis? Is there one somewhere?
To the extent that they can be done. Some of them are more able to have cost-benefit. For example, some of them are expansions of existing pilots. Others are new, and so it’s a bit theoretical, but they’ve definitely had— they have to show the return on the investment, at least the projected the return. As I say, the ones that are new, you can’t necessarily show it.

Because, I suppose, the criticism is it looks good on paper, and it’s got a good title, your critics would say, but they’re not sure whether it’s actually going to deliver. And if you can’t tell us what the cost-benefit ratio is, how do we know it’s going to deliver?
I’m more than happy to show them to you, but it’ll take longer than this whole interview. But in terms of what we’re trying to achieve, there’s still no guarantee that these particular individual initiatives achieve, but we have set up a set of criteria for measuring achievement up front. They will go through that process, and if they don’t actually match up to what they’re proposed to do and what they undertake they will do, then, yes, they will be stopped and wound back, and that’s an important part of the whole social investment process. Now, these ones are targeted at complex areas which aren’t just about a single portfolio. They end up having to be categorised for budget purposes as single portfolios. But, yeah, we’re talking challenging issues, like, for example, people that come out of prison who don’t have housing, to get them into housing that supports them and they don’t just drift back into crime. There’s a whole new positive pathway there which is led by Corrections but involves Housing New Zealand—

And health and other things. But given it is so complex, you’re investing 303 million in screen producers grants, which your critics would probably call corporate welfare, compared to 320 million on social investment. Have you got the balance right?
Well, there’s actually $7 billion in social investment over the— you know, in terms of the social sector money, if we’re comparing apples with apples. In terms of the film grants, that’s a continuation of the existing programme. We’d have had to stop the film subsidies for international films if we didn’t put that money in. It’s not an extension or an expansion.

But why wouldn’t you do that?
Well, then you wouldn’t have a film industry in New Zealand, and that’s, sadly, and I happen to disagree with it—

You’re saying without government intervention, without propping up international film companies, we wouldn’t have a film industry?
Because unfortunately, the way the world industry operates is that if you don’t find— if you don’t provide that level of support, then you won’t have an industry. And I disagree with it quite vehemently, actually, but I don’t get to choose it, because New Zealand is a small player in the world, so we have to make the judgement — do we want to have a film industry here, like The Hobbits, like the Avatar movies and so on, and if we do, does that give us benefits beyond the film industry? And it quite obviously does, because we’ve had a big increase in our tourism industry, and a lot of that has been because of the high profile of some of those movie franchises has given it. So we look at it, and we look at it as terms of the upside for other industries, and we take it.

You’re basically telling me you have to suck that up, you don’t like it.
I’m not a big fan of it, no, but I do suck it up, because, actually, as I say, it brings real benefits in other areas, like the tourism industry.

Okay, well, let’s have a look at what was, arguable, the masthead proposal in your budget — Working for Families. Council of Trade Union says that the adjustments that you have made are only returning half of the value you have stripped away since 2010. So why didn’t you go further?
Well, look, I just disagree with it. I mean, it’s the whole left-wing Labour Party way that everything was perfect when Labour were in office and if we just kept drawing a line out into the future, it’ll be fine. Well, if we’d drawn the line out into the future on all the social spending that was there at the time and everything else that they were doing, we would’ve had that decade of deficits Treasury warned us about, and we would’ve had debt at this point at around 60% of GDP.

Yeah, but you’ve got a great surplus, you’ve got great surpluses into the future. Why didn’t you go bolder?
This is actually a really good point, because we don’t actually in fact have a whole lot of headroom to do more. We’ve actually, if you look at it, yes, we’ve got the surpluses, but, of course, out of your surpluses, once you’ve done it, and so once you’ve made your spending decisions and then taken the costs out, the rest is all allocated for infrastructure. There’s nothing left after that. Over the four year period from this budget through to 2021, we actually have no spare cash, because we’ve got this massive infrastructure spend which is actually chewing up all the money that the surpluses generate, so there is nothing spare. And, in fact, as was pointed out in the paper this morning, the first couple of years we were actually slightly borrowing more and then the second couple of years we were paying more back.

Your critics would say you’re being too tight, because what they’re saying is that maybe you should’ve borrowed for the infrastructure and spent the money you had more into social services.
I just think it’s a really hard argument to make that we should be borrowing more at this stage of the cycle. We’re actually in a strong economic position, and we should be reducing debt as a percentage of GDP. Remember, before the GFC, we had about 7% or 8% net. We borrowed about—

But you’re being even more ambitious now, aren’t you? Because you set one target, and you’re going to make that, and then you’re setting another debt reduction target.
No, let me take you through it, because we went from 7% up around 20% to look after the people of Christchurch and look after New Zealanders after the GFC. That was the two rainy days, and now we’ve got to steadily prepare ourselves for the next rainy day, which we all know is going to come. So all we’ve said at this point, and there are people that think that I’m not being tough enough, is that we’ve said that we’ll get back to a net debt of 20% by 2020. Remember, it started at 7% or 8%. And I’ve said 10% to 15% by 2025. Actually, the second five-year period is not as difficult for new spending as the first three or four years. We literally have no more money— As long as we don’t borrow more cash debt over the four-year period, we have no more money than we’ve spent across the families package and across infrastructure.

And that families package, let’s get back to it. If you extended the Working for Families credits to unemployed people, Child Poverty Action says an extra 230,000 kids would benefit from that. So I suppose the question there is—
Well, actually, can I just correct you? Because it is actually that.

Aren’t the children of beneficiaries as deserving of government investment at the same level as the kids of the employed?
And they get it. The Working for Families Tax Credits goes to everybody with children, whether they’re employed or unemployed. That’s the thing with the Working for Families Tax Credits for children. So they go for children — everybody, across the board.

Yes, everybody gets it, but if you look at the comparison. So a solo parent on a benefit would get 375 bucks back by the change in the tax thresholds. A solo parent who’s earning the minimum wage would get 2435 bucks back, round about.
Well, actually, no. With the Working for Families changes – for the $9 per child for the first child under 16 and the $18 or $27 a week, depending on the age of the child for the second and subsequent children goes to everybody. So it goes to people on benefits as well as—

Yes, but it’s about who gets most, though, isn’t it?
Well, that’s exactly—

It’s about who gets most, and they want the spread to go further to include the children of the unemployed at the same level of kids of—
I think they misunderstand it, then. I genuinely do, because, actually, those family tax credits for children, they’re applied to the same rate on the same basis with the same income and the same thresholds as anybody else. There are other things that don’t – the in-work tax credit, which we didn’t change. But in terms of what’s been changed and the additional money for children, it applies to everybody irrespective of their source of income.

And you think everybody’s being treated fairly?
I think—Well, we can all make an argument about different things. All I’m saying is that that is actually how it works.

So they’re not being treated fairly, or they–?
They are being treated fairly, I believe, and we work very hard on this, and, of course, then, on top of that, those families with high housing costs benefit too from the accommodation supplement changes, and that applies to beneficiary families as well as to working families. So it actually goes to everybody, again, subject to their income.

Now, you’re having to put aside some money for families who are going to be worse off as a result of these changes to help bridge the gap. So how many families, and to the tune of what are they going to be worse off?
Okay, well, there’s a total of 1.374 million families that are better off.

Okay? And there’s around 6000 families that will be worse off to the tune of less than $3 a week. And there are about 200 families, we think– We’ve done the analysis. About 200 families that might be affected by more than $3 a week.

Up to what?
Oh, $10 or $15. But that’s why there’s actually the transitional fund – to make sure that they’re not affected in that way. And just by applying– Just as we did the last time, by applying for support from that fund, we can ensure that that doesn’t happen.

Okay. So, half of those making low wages – so under 24,000 a year – get nothing from this, and all of those on the high incomes will get 1000 bucks when it comes to the tax breaks, right?
Well, let’s be clear. In terms of that lowest quintile,…

…everybody that has a family and everybody that has housing costs benefits from the package. And that’s what we targeted—

And the other half don’t. About, well, 48% don’t.

48% of that group would not.
That’s true. Single people who don’t have housing-cost challenges don’t benefit from the package, and we’ve been quite open about that.

But they could still be low-income.
Yes, but if they have high housing costs, they will be supported, because they have the Accommodation Supplement.

What if they’re in a Housing New Zealand house, though, and so there’s not the pressure on the accommodation side of things but they’re still struggling to make ends meet?
Well, the Housing New Zealand houses in that situation, of course, they have the rent, which is capped, but their level of income—So they are already looked after in that context.

Looked after enough?
Well, I believe so in the context of what we have available to us. I mean, everybody can make an argument for more, right/ But, actually, in the context of the resources we have and our declared focus to focus on low-income families with young children just struggling to get ahead and also to make sure that people with high housing costs are looked after, I think we are looking after them.

But can everyone really make an argument for more? Because I’m wondering – what are you going to spend your thousand bucks on?
Look, I haven’t considered that, and I’m the least of my considerations in that regard.

Isn’t that the point, though?
No, no, no, because you can’t change the thresholds without changing them for everybody, and there’s a whole bunch of people who earn $48,000 a year, who are currently moving into a 30c in the dollar tax bracket who won’t be through this. And, actually, if you look at the median income in New Zealand right now, it’s 49. If you look at the average wage, it’s about 58.

So did you intend these tax breaks to work in this way? Is this how you intended it to work out? That everybody over 52 grand are going to get 1000 bucks in their back pocket?
I did intend it to work that way, because we have to adjust those thresholds, otherwise people on the median income—

But you’re—
No, just—people on the median income and below are paying far too much tax on their marginal income, and we do want to look after those people as well, because that’s right in the middle of New Zealand income-earners, people bringing up their families, and the whole package is designed to work so that at the higher end, you get a bit from the tax and at the lower end, you get more from the Working for Families and the Accommodation Supplement, and it works as a package together.

Okay. I want to talk about the 155 million that’s set aside in operational funding for emergency housing. So what is that? Is that to pay for motels, or…?
No, it’s to pay for places. It’s the second stage of the funding that was already announced late last year. This is the second part of that, and we’ve made a bit commitment to emergency housing.

But it’s not setting up new permanent places, is it? It’s not growing your housing stock?
Oh, no, it is. There is a short-term element to the emergency housing funding, which, as you pointed out, is for, basically, renting rooms where they are already existing, like motels and so on.

Do you know how much of the budget will go on that or is tagged for that?
Well, it’s an operational thing. It’s – how quickly can we set up the more permanent places? And in the meantime, if we can’t set them up quickly enough and we have somebody that needs help, we’ll give that help and make no apology for that.

So, how many permanent beds will you get out of that money?
I don’t have the exact figures in front of me. It’s a few thousand, and people cycle through them on to social housing and so on.

Is that good value for money, though, if it’s a few thousand and it’s 155 million?
I’m not going to get caught into all the details. You need to get Amy Adams on the show if you want to go into this in depth.

We’d love to have Amy Adams on the show.
Get her on the show.

Okay, so, these are big headline figures in the budget, but when you take a closer look in real terms, health, according to the CTU – 305 million short in just this budget.
Yeah, but how did they actually say that? Yeah.

Let me finish. NZIER says that education and health will be -7% to 8% in spending over the four-year course of your budget. So why aren’t we keeping up?
I just disagree with that. So, NZIE figures is based on those services constantly needing a constant share of the New Zealand economy, and there’s no requirement for that, because, actually, the bit that’s missing in both of those analyses is – are we getting productivity benefits as we expand our health system and as we expand our education system? So the CTU—

Are you saying that—? No, no. Are you saying that those productivity gains account for all that difference in expenditure they’ve identified?
Yes, we’re getting significant productivity gains, and my personal belief is we can get more. So you give that one example, which I think is quite illuminating – this whole question around the emergency departments in hospitals and requirement we set up back in 2009, 2010 that people get seen within six hours. And that requirement, which was fundamentally a change of approach and a change of—was pooh-poohed at the time by many people, but it saved tens and hundreds of lives through that one change. So in terms of the improvement of quality, it involved on extra money beyond what we were doing at that point, but it involved a change of approach, and I think the health sector’s up for more of that, but they’re also getting a very big investment. I mean, this is $3.9 billion over four years, so the CTU might think it should be a little bit more.

Sorry to cut you short. We’re out of time. One-word answer – did you personally go out to steal policy from Labour?
No. No, we didn’t. They haven’t got any to steal.

Thanks for joining me this morning. Finance Minister Steven Joyce.

Check Also

2024 – Capital Markets & Investment

Capital Markets & Investment: The Growth Equation The Capital Markets & Investment report provides a …