Election Double Shot Interview: Bill English argues NZ economy needs the stability of National to keep growing sustainably

By Bernard Hickey

Over the final two weeks of the campaign I'll be interviewing the major party finance spokesmen, including National's Bill English, Labour's David Parker, New Zealand First's Winston Peters and Green Co-Leader Russel Norman.

I started by asking National's Finance Spokesman Bill English about the high New Zealand dollar, which has been a factor driving down the export share of the economy from 33% of GDP in 2008 to a forecast 26% by 2018.

English said the currency was not something the Government could control, but it could take some actions to reduce upward pressure, including constraining Government spending and getting the housing market working more efficiently.

"Probably one of the most common complaints I get is from areas outside of Auckland saying: why do we have to have an Auckland interest rate and an Auckland exchange rate? Why can't you get that housing market under control?" he said.

"It is a pretty critical variable for the New Zealand economy. It's our largest asset class. It's not a flexible market. It's starting to improve," he said.

English agreed the 30% plus increase in Auckland house prices since 2009 "could have been better," although he noted the Government had commissioned the Productivity Commission's inquiry into Housing Affordability that was published in 2012.

"Four or five years ago no one had really got to grips with what had driven the previous cycle where it doubled up to 2009," he said, pointing to the Commission's focus on increasing housing supply.

"That's enabled us to bring in Special Housing Areas, because we could see the planning system was gummed up, particularly in the transition in Auckland -- a 7,000 page Unitary Plan and no one understands it. You can't tell what that's going to do to the housing market. So we've gone over the top of them," English said.

RMA changes

Questioned about the progress so far, he said the Government had created the opportunity and "it's starting to flow," although he noted there was a lot still to do.

English then questioned New Zealand's planning system more broadly, arguing people did not understand it, "including the people who are doing it."

National planned to do more if re-elected to improve consenting processes and increase land supply for housing.

"After the election, there's a Resource Management amendment bill that standardises a lot of the planning processes. That could be quite a step forward. We'd like to do a lot more intensive look at the incentives on councils and council officers and the way they make decisions that restrict the availability of land -- the political pressures to restrict densification within cities (which are) pretty strong here in Auckland, and the interaction with infrastructure."

English said the Government and councils needed to better understand why some Councils, such as Waimakariri and Selwyn in Christchurch, were keener to build infrastructure for new housing than others, such as Auckland.

'An overlap with supply'

I then questioned English on National's plan to double first home buyer subsidies for new homes, which risks adding more demand before the supply has been built.

English said there was an overlap with supply and the package was designed to encourage the building of new homes.

"It's a bit like the argument with the accommodation supplement. You've got to work both sides of the equation," he said.

"You have to support them to be able to pay the bills, at the same time as dealing with the long term issues that reduces the Crown's fiscal exposure to this stuff."

English said buyers would make their own decisions about whether a home was affordable or whether they might be biting off more debt than they could support.

The best contribution the Government could make was to take fiscal actions to keep interest rates lower for longer and to deal with the longer term supply issues.

Capital gain less likely

English said there were structural changes meaning big capital gains may be less likely over the next 20 years for buyers today than those, such as himself, who bought houses in the early 1980s.

Interest rates had fallen a long way, which had driven up capital values and could not be repeated to the same extent, he said.

"The other thing is the availability of leverage. In the 80s it was 40%. The Baby Boomers have enjoyed a ride where capital values were driven up partly by the availability of credit where you could borrow 100%. Both of those things have peaked. No regulator or Government is going to let you borrow more than 100% like they do in Holland," he said.

'CGT would hit producers'

I then asked English about the Labour/Green proposal for a Capital Gains Tax and their claim it would shift activity from speculative investment to productive investment.

English said a CGT would hit the productive sector too, given it applied to farm land and to other business assets.

"I think you're seeing an unravelling of the idea in a way that was entirely predictable," he said, pointing to reviews by both Labour's Michael Cullen and National itself which had decided against a CGT.

"By the time you do all the political carve-outs, you end up with a mish-mash of a tax that's relatively easily avoided, quite complex, and doesn't generate as much revenue as you'd think," he said.

"Labour are just going through the process of finding that out."

NZ Super sustainable?

I then asked English about the forecast growth in New Zealand Superannuation payouts to almost NZ$14 billion by 2018 from NZ$7 billion when National was elected in 2008.

He said Labour's proposal for a staged delay in the retirement age produced relatively small gains.

"I think we spend a bit too much time with endlessly negative rhetoric about something that can't be controlled, which is the population is getting older," he said.

Investment-led approach in Education and Health too

The Government was therefore more focused on controlling costs in areas such as Social Welfare and Health, where costs could be more easily controlled.

English said the Government would look to extend its investment-led approach in Social Welfare into other areas such as Education and Health, particularly in areas such as earlier reading recovery investment and diabetes prevention.

"If we get re-elected in Budget 2015, we would be supplying some of the money directly to groups like vulnerable children," he said.

He suggested the Government could put some of the funding up in a contestable process where outside agencies bid for funds normally spent by Government departments.

"Certainly the prospect that it may not (directed to departments) is getting them motivated," he said.

Inequality debate

English rejected arguments from Labour and the Greens that income inequality had worsened over the last 15 years, pointing to the MSD Perry report showing inequality broadly flat since the mid 1990s.

"We've focused on the long term drivers of persistent deprivation -- lack of education, violence and welfare dependency," he said.

"I don't think you'll see agreement for the sort of big cash transfers of the sort proposed by the Greens and Labour until people have confidence that the Government machine that's there to support people has got the balance of responsibility and support right."

'Less hairy chested'

English rejected suggestions National had 'wasted a good crisis' by not making more radical reforms after 2008.

He said New Zealand had a history of making major reforms during crises that were subsequently wound back because they lacked broad public support.

"A lot of arguments were lost in the long run. We've taken a different view -- less hairy chested, more focused on bedding in real change over time so that it sticks, and that's a style you could expect to continue if the current John Key-led Government was re-elected."

Here's the first Election Double Shot recorded with Winston Peters, in which he argues for a new monetary policy, foreign buyer controls and migration limits.

See all my previous election diaries here.

See the index for Interest.co.nz's special election policy comparison pages here.