SIMON Finance Minister Michael Cullen delivered his sixth Budget this week, it included tax relief for low income earners of 67 cents a week from 2008, high income earners will benefit by ten dollars a week. The Minister also released details on the government's workplace savings scheme for first home buyers and retirement savings. I spoke to him earlier today from Napier.
Dr Cullen welcome to the programme. Perhaps the most prominent feature of the Budget is the Kiwi Saver Scheme by which savings will be encouraged with government seed capital of a thousand dollars but only from 2007, why?
MICHAEL Well it'll take that time to get the scheme up and running in operation properly, in fact that’s a pretty tight deadline. We still have to do some level of consultation with business, with the savings industry, the trade unions and others around some very minor details of the scheme but it's important to get them right. We've then got to introduce legislation obviously after the election and past that and then we probably need about six months lead time from passage through to implementation. So 1 April 2007 is the earliest possible date, I'd love to do it earlier but we'd almost certainly fall over if we tried to do that.
SIMON The scheme is one that’s pretty similar to one that was implemented in Britain in 1986, a scheme that’s widely regarded to have failed, what makes you think it's going to work here?
MICHAEL Oh I think there are some quite significant differences in terms of the emphasis upon the opt out rather than the locked in provision, the linkage to home ownership I think will be quite important in terms of attracting younger people into the scheme, there's really nothing else available of this sort within New Zealand, so we're estimating something over half a million by 2012 should be in the scheme.
SIMON What sort of percentage of younger people do you think will be eligible for the home ownership loan?
MICHAEL In terms of eligibility quite a high percentage depending on how many take up of course the Kiwi Saver option. They’ve gotta be in Kiwi Saver first, once they're in Kiwi Saver it'll be pretty high, we haven't set the income limits yet but we're thinking in the order of 100 thousand dollars for a two earner household.
SIMON So what three out of four people will be eligible?
MICHAEL It would be more than that I think in terms of young couples at a 100 thousand dollars.
SIMON Let's look at the tax threshold changes, that means workers are gonna get something between 67 cents and 10 dollars a week extra, what's the point, why such trivial tinkering?
MICHAEL Well this isn't really designed as if you like a tax cut programme it's designed as a fairness programme in terms of the balance of indexation. People have made the point particularly after the petrol indexation came in that we were indexing petrol, indexing alcohol, indexing tobacco, so we were indexing the bits that we got in but weren't indexing the other side of the equation in terms of the thresholds and income tax. What it does emphasise again is that this costs some 360 odd million dollars for that level of tax cut, if you’re going to deliver really large tax cuts for the majority of people not just those at the top end you’re talking of the order maybe of two billion dollars a year and as National now has to admit that does mean they'd have to cut into health and education. There is not free lunch in budgeting.
SIMON It does seem to me that you’re being somewhat selective though when you talk about indexing because in 1999 Helen Clark talked about the top rate of tax of course being designed to capture the top five percent of earners, it's now more than double that, why is the original 5% promise no longer being honoured?
MICHAEL It wasn’t a promise that was limited to 5%, it was our estimate at the time that it would affect only 5% and that was in fact the best estimate when it came in, by the time I came in it was actually 7%, it's now what 10%, 11% or so, but equally of course we're trying to index the lower thresholds as well. The bottom threshold of course doesn’t move much at 6% movement, it hasn’t moved since 1988.
SIMON Okay well even if we talk them tax thresholds you don’t want to call them tax cuts obviously but they don’t even kick in for three years, again why the delay?
MICHAEL Well because it is a three yearly programme, it's a programme which says every three years we're going to adjust the threshold.
SIMON Why can't it start next year?
MICHAEL Well if you start next year it's another 360 odd million dollars in a Budget which is already somewhat stimulatory in the coming year, it adds further there to the growth in the cash deficits. Now I've been emphasising for some months that we were moving to a position where we're no longer going to be reducing the debt ratios but flattening out and there was not room for a lot of extra movement apart from that. I think people are starting to finally get that fact in their minds and again I emphasise that means all other parties haven't got a free room for lots of promises which they can see we can do without affecting core services like health education and superannuation.
SIMON Yeah but 67 cents a week in three years time, I mean that seems contemptuous.
MICHAEL But Simon this is not a key element of the Budget at all, indexation is a key element in terms of fairness in the balance between what we index and what we benefit from indexation and what we lose from indexation. Unless you adjust those bottom thresholds very significantly indeed you don’t get a lot of gain for most income earners, that’s the point I've been making for years. For the ordinary income earner to get a big benefit from tax cuts they have to be enormously expensive and that means cutting into health, education, superannuation and law and order, and that’s gonna be the choice of this election. Do most people want to see strong services or do they want to see tax cuts which inevitably will primarily go to those on high incomes.
SIMON But this surplus though is taxpayer money, why don’t you trust taxpayers to have the choice to spend their own money.
MICHAEL Oh well let's have a look at the surplus, the surplus this year is very high because we've had very strong growth and very strong tax flows.
SIMON Well what better time to have a tax cut then?
MICHAEL Yes but a tax cut's permanent Simon, next year the cash surplus is down to 30 million out of the 50 billion budget, the following three years we average a cash deficit of 1.9 billion. If you want to spend more than that or forego more revenue than we're foregoing in the business tax cuts and the threshold change then those debt ratios will start to rise again and what is the point of leaving our children and grandchildren an increasing burden because we couldn't just hold our breath in the present time.
SIMON You’re claiming the forecasts are negative for the future but the forecast for the last few years had been positive, is there any scenario under which you would offer tax cuts, meaningful tax cuts?
MICHAEL Well meaningful tax cuts of the sort that you’re talking about are going to be in the order of size of a couple of billion dollars a year, very hard to do that. Let's take health. There's probably inbuilt growth in health of at least 600 million dollars a year probably a little bit more than that. We're allowing in the out years 1.9 billion dollars of extra spending for the entire budget not just health, so if you’re going to start knocking out a lot of extra money by way of tax cuts you’re going to have to eat into these core areas and it's no use saying well we won't have Hip Hop tours or things like that, they are pitiful amounts of money in terms of the total government budget, no point in pretending there are lots of extra government public servants when most of that is simply people like extra Children and Young Persons' Service people that we need to look after kids and bringing the special education service that deals with kids with special needs back into the Ministry of Education. There aren’t any magic mirrors here to produce the couple of billion dollars for tax cuts without hurting the majority of ordinary Kiwis. A Labour led government is going to put the majority of ordinary Kiwis above those at the top end of income …
SIMON That’s the way you see it of course but Don Brash has called it a huge opportunity lost, the Dominion Post says is that it? The Herald says damp squib.
MICHAEL Yeah but that’s only the tax cuts.
SIMON No they're talking about the Budget as a whole.
MICHAEL Oh no no that was about the tax thing.
SIMON The damp squib was, the rest of it …
MICHAEL No no they talked themselves into believing there was going to be some big movement on tax changes and then blame me because there wasn’t, now I'm not responsible for press gallery journalists who interview their own typewriters. This Budget has enormous initiatives in terms of the business taxation area particularly the small and medium size business, it has big extra spending in health and education, it has the Kiwi Saver Scheme which is another building block on top of the superannuation fund for the long term future. We are the only party which is actually putting up budgets and proposals, we're about the long term not just about scratching every itch for the next four months and then of course breaking promises after the election.
SIMON Alright, on One News immediately after the Budget you said the following
It's so good would you go early to the electorate? That’s not the intention here at all I want to pass this Budget before we got to the electorate if at all possible, now that will take us into August so that would mean a mid September election. Dr Cullen thanks very much..
Well that suggests that you've ruled out an early election, are you now committed to a September date.
You basically said that you need time to bed in the Budget and that therefore the election will be some time away, are you now committed to a September date, have you abandoned an early election possibility?
MICHAEL That’s a matter for the Prime Minister. Of course the last election was in July so the three year term is actually up in July this year, the latest date we can go is September. As Leader of the House I'm still planning a programme through to the 11th of August which gives us time to actually pass the Budget, it takes that time to go to the Select Committees in terms of the estimates back to the House and the debates that are required, I would much prefer that we were able to finish the budget process off before going to an election.
SIMON A few months ago Labour looked untouchable, how concerned are you by the raft of scandals recently?
MICHAEL Well I mean there's been an amount of digging around by people like Rodney Hide, he's slung a lot of mud at Mr Tamihere, the government spent an awful lot of money having to have it demonstrated that those were wrong, I trust the same will happen with David Benson-Pope. Apart from that I mean it's a big hard to call some of the other stuff scandals, we've had a systems failure by the Police in the 111 system, in the Budget we're putting 45 million dollars into rectifying those systems of failures, we have an assurance from the Commissioner that the management issues will be addressed at the same time.
SIMON Alright if you win the election you'll almost certainly need one or more coalition partners, who do you favour?
MICHAEL That is a matter very much in the hands of the public. Under MMP the public determines very much the shape of the parliament in terms of the parties. We find the current arrangement has been extraordinarily secure, reliable and stable. United Future has been a very stable partner, they’ve actually voted against us more often than the Green party but they have lived up to their word in terms of confidence and supply and procedural support within the House, that’s enabled the most stable MMP government that we have seen so far since 1996. the Greens have been very supportive on a whole key range of policy issues.
SIMON Well let's ask about that Greens, they want to halve defence spending, stop building prisons, would you pay that and other prices, what's not negotiable?
MICHAEL Well unfortunately with MMP you deal with the ratios as they come out of the election and you have to deal with the balances as a reality of the democratic situation. What's important I think for minor parties to remember is not to overplay their hands, whenever they do that they really take a hammering as New Zealand First did of course in 1999. United Future for example has been very careful not to overplay its hand while also differentiating itself on a whole range of key issues.
SIMON You mentioned New Zealand First could you accommodate New Zealand First while still retaining Labour's integrity?
MICHAEL There are always I think more difficulties with them because they're sometimes strange to work with. I have to say that working with Dale Jones on the Foreshore and Seabed issue went very well indeed, he understood the issues well, he was sensible and we came to some very sensible compromises, we didn’t get everything that we wanted in that bill on the other hand they accepted there were things that they couldn't get either, and I do think that we are able to demonstrate a strong ability in Labour to work with other parties, whereas National seems that daggers are drawn with its only real support party ACT nearly all the time.
SIMON Could you work with the Greens and New Zealand First, that’s a possible scenario, I mean they seem fundamentally incompatible?
MICHAEL At the moment we're working with the Greens and United Future. I think what all parties in parliament have to realise under MMP is that we have the duty to make the system work. The public votes, if we then sort of throw our toys of the cot and say we're not going to make it work then we will inevitably be heavily punished by the electorate at the following election and so we should be.
SIMON Deputy Prime Minister, and Minister of Finance, Dr Michael Cullen thank you very much for appearing on Agenda today.
SIMON Joining us are our guest commentators Bernard Hickey and Brian Fallow talking about what Michael Cullen had to say. Gentlemen before I ask you a question this from John Armstrong in the Herald this morning.
'To the catalogue of great disasters, the Titanic, the Hindenberg, Michael Jackson's marriage to Lisa Marie Presley, can be added the words Michael Cullen's sixth budget. The Finance Minister has done the seemingly impossible turning wine into water, he had the huge advantage of a fat surplus and a robust if slowing economy but his budget is an election year flop.'
Why is it so disappointing?
BRIAN Well because it's a sort of better than nothing, better late than never effort. What we see here is the authentic Michael Cullen and the disappointment from the fact that there was a speculation about some sort of income tax cuts which the government let run for several days and didn’t hose down, so they're the author of their own negative reaction there, but while we focus on what's new and different in a budget in many ways the story is, the bit that is the same old story, there is another couple of billion dollars on government spending here and similar sort of increases are pencilled in for the years ahead and as long as he keeps doing that spending will continue to grow as fast as the economy and the tax base that has to fund it from, and as long as you do that and you have a lid on government debt there's never going to be any scope for tax cuts, hence the line he was running in your interview with him, what are you gonna cut if you’re gonna have tax cuts. So at least it's honest in that sense and it sets up the debate that we need to have over the next sounds like four months between National and its tax cuts policy and a Michael policy which is all about spending it and not raising any debt to load the next generation of taxpayers with an interest bill.
SIMON Could they have cut expenditure and still satisfied the public? Or did they satisfy the public in the first place?
BERNARD That’s the problem, they're locked into this spending track, if you look back over the last six years there's been a significant increase in the government's take on the economy not just in revenue but in spending, a bit increase in social welfare despite the fall in unemployment, large numbers of extra people on to sickness benefit, and the amount of spending going to education is huge, I mean if you look at just the Wananga for a start and in health and at some stage maybe in this election campaign people are gonna ask so much money is being pumped back into the government are we getting value for it, and if we're not perhaps we should have a tax cut because – and that was the real disappointment about this budget, at the Dominion Post we looked at it and we think is that it, and that’s what our headline ended up as because expectations have been raised as much by groundswell of support for at least talk about a tax cut, and also what happened in Australia. If you look at the thresholds here they are peanuts.
SIMON Many think tax cuts with a relatively lower surplus were on a population basis, they can justify it Michael Cullen can't. How does this work?
BERNARD That’s right, and this is part of the problem we looked at this, the Australian threshold changes deliver four and a half thousand dollars a year to people at that top end, 534 dollars a year for those people at the top end in New Zealand.
BRIAN This is the difference between if you like the two men Dr Cullen and Dr Brash. Dr Cullen is haunted by the baby boomers, we're all getting older, we're gonna cost a fortune in pensions and health and he says we've gotta save like crazy for that, it's all about being fair to the next lot of taxpayers, but Dr Brash is worried about all the people in departure lounges waiting to go to Sydney or London. It's no point looking after them they won't be here they’ll be in some more lightly taxed economy and that in a sense is the choice before the electorate which group do you worry about, the people who are leaving the country, there's a nine thousand dollars difference in the average take home pay between New Zealand and Australia, so that’s a serious structural problem with Dr Cullen's budget, there's exactly nothing to address that.
SIMON Well 67 cents a week with no extra in three years time what are you sposed to make of that, are you sposed to be encouraged does that say vote Labour or does that say – you’re giving me the fingers Dr Cullen.
BERNARD That says look at the websites that give you the cheap fairs to Australia, I mean that is the problem here, we've got an economy that is short of labour, short of skilled labour and we're losing in March alone at two thousand one hundred people in that month left permanently from New Zealand to Australia. By 2008 when these things kick in we could have lost another 70 thousand people that’s a decent sized city of our best skilled people who've left the country. I've got two brothers who've set up in Australia, they’ve got families there, they're not coming back, they were trained here, our government paid for their education and they're living in Australia paying taxes to Canberra, and a lot of people are in the same position, all our businesses are thinking where am I gonna get these people they're leaving to Australia.
SIMON Business wasn’t impressed was it, Thomas Pippas from Deloittes said nothing in it for taxpayers talking about the budget, it's chump change, Alistair Thompson from the Employers and Manufacturers Association to call them tax breaks a big stretch of the imagination, underwhelmed.
BRIAN Yeah that’s very fair comment. I mean the tax changes were tweaking and fixing minor things that are wrong. It is a decent thing to do to inflation proof the income tax threshold and to get business depreciation rates that are more economically real, but it's not – it doesn’t effect any sort of structural change and the credit you should get for it is correspondingly small as well.
SIMON The Qantas Media Awards for television and radio were held last night, now in their 14th and final year the awards acknowledge the very best in broadcast journalism. Robert Boyd-Bell was one of the judges and he's with me now.
Robert how would you describe the calibre of this year's winners?
ROBERT Oh I think there's some great winners actually, I think New Zealand was the winner on the night, maybe not by 40 points like there was in the Rugby but I thought the room went very quiet when Maori Television won their first award of the night for that stunning piece that Alison Carter produced about the birth which is you know that classic human story that’s so well done.
SIMON There was a generosity of spirit to that though, I mean the room went quiet initially but the very first award of Maori Television.
ROBERT And others went on but yeah so I think it was – it's interesting because they came, the awards judge work mostly before the current competition at seven o'clock so that really tight battle that’s going on there at the moment wasn’t evident in the work that the judges were looking at for these awards.
SIMON Though on the whole how healthy is New Zealand broadcast journalism better than it was?
ROBERT Yeah I think there's some great bits, I think you'd have to be very churlish not to be applauding Charlotte Glennie for the work that she's done in Asia, there's more than a billion of our near northern neighbours that New Zealand media have largely ignored in the press to their discredit.
SIMON You say Charlotte Glennie she is this year's best news reporter, let's have a look.
'Temple is now a makeshift morgue and in this searing heat there are hundreds of bodies awaiting identification, it's more awful here than you could possibly imagine and the smell is unbearable. People are now facing the grim reality that their loved ones may not have survived. Bodies are decomposing and identifying them becomes harder as each hot day passes.'
One News' Charlotte Glennie, Best Reporter, what stood out about her work?
ROBERT I think although you have to credit the Tsunami work, that’s a story that everybody did, I mean the stuff that I find extraordinary about Charlotte is the stories that she's been producing out of that whole beat that I'd never heard of before.
SIMON We've never had an Asian Correspondent before.
ROBERT And I read relatively widely but she produces week on week stories that I don’t know.
SIMON Well One News also took Best News Programme this year what gave it the edge on Three News?
ROBERT Well it's really hard for me to tell. Putting up One News against TV3's Nightline is a bit of an odd sort of comparison really, I mean it's not like on like and I wasn’t involved in that decision and I can't quite fathom how you make a judgement between those two quite different programmes for different audiences.
SIMON Some people say it just bats around from one to the other year by year.
ROBERT Oh I don’t think it's quite as simple as that, I mean however earnest judges are they try to make a rationale for their decisions. I think there's some other great things. I think Miriama Kamo in Sunday was a good piece.
SIMON Miriama Kamo won Best Current Affairs Reporter. Again what were her winning attributes?
ROBERT Oh I think that she's done some extraordinary work over the last couple of years, she tended to get the colour pieces in the Sunday programme, she's got a stronger role in 20/20, I'd say if you’re a regular current affairs watcher of TVNZ, TV2's 20/20 should keep Sunday on its metal really, and does.
SIMON These were the last Qantas Awards, why are they being discontinued?
ROBERT Well that’s the story of the night that nobody really can fully explain. I think that the Television Broadcasters Council has decided to take them over. The industry's had an on again off again relationship with awards that they sort of need them and they sort of don’t like anybody else running them, they want them to be part of the marketing division but they want them to be independent and it's a very difficult sort of tension and I think we're going through that process right now that the industry has decided that it wants to now bring the awards back into the fold but it's not quite sure how to work that through, and that was still going on last night as I was listening.
SIMON Well let me bring the panel in now. Gentlemen?
BERNARD Well tell me from the sort of press side of the room to the TV side, how much do you think this increased competition in the current affairs slots which has been violent this year, has actually improved the quality. I see a lot more of it but I wonder about the quality.
ROBERT I think it has actually. Well for example and here I am on TVNZ but I think I see some lateral thinking going on in TV3's Campbell Show that isn't so evident in Close Up. I see some stories that Paul Holmes is doing this year that he probably wouldn’t have done last year and he's doing them in a different way, and I think there is actually quite a lot going on there, just that we can't watch three at the same time we don’t have six eyes.
BERNARD Do you think there's a danger though that increasing the amount of shows is actually diluting, everyone's running around producing shows but I wonder if they're actually investigating and breaking stories.
ROBERT I think there's a limited number of stories in New Zealand and some of those, one or other of shows at some time will be a casualty I would have thought.
SIMON Is this just about choice from a range of treatments? Is that what it is?
BERNARD Which one do you think will go first?
ROBERT Oh I don’t think I'm brave enough to say that this morning.
BRIAN What about the timing of that slot though, I mean a lot of the country's presumably still commuting at seven o'clock, is there a problem there?
ROBERT You could think about it if we're living in Auckland but I suspect you know there's an awful lot of New Zealand that is still sort of half an hour from home, and well I find it difficult to watch the news at six, I think I can get home by seven very often.
SIMON Rating numbers actually peak around 8.15 but who's going to give up first mover advantage?
ROBERT I know who's gonna give it away.
SIMON Is Prime locked into a corner with the First at 5.30?
ROBERT Yeah probably but they're making it work for them, and there's been some new advertising support in Prime this year that wasn’t evident last year, so I think for a number of things, quite apart from Paul Holmes himself the channel has made inroads and made agencies take it seriously that wasn’t so before.
SIMON Can you actually be successful in that Prime scenario though of having a game show between your news and current affairs?
ROBERT Oh I don’t – no probably not, I would have thought in the long run but some of the game shows are very good.
BERNARD I wonder though how long this can continue, we're in an amazing period for media where there's been so many product launches, so many new things coming out there, we're at the top of the market for the advertising sector but the economy is slowing off and at some point and it's not gonna be too far away the pressure's gonna come on and one of these channels is gonna have to buckle.
SIMON Alright we'll leave it there with the Qantas Awards.
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