Grant Robertson makes his case for the Finance Minister job: Alex Tarrant asks about Monetary Policy and not spooking the market with an unemployment target, productivity, free trade, tax settings and spending priorities

By Alex Tarrant

Grant Robertson wants to be the next Finance Minister. And it’s looking like he’ll be a busy one if Labour gets elected.

Changes to monetary policy, spending billions more on health & education while finding savings in the corrections, defence and social investment budgets, and trying to find the trick to unlock those elusive export growth and productivity targets. All at the same time as renegotiating the TPP.

How will he go about it? Will he spook the financial markets with Reserve Bank Act reform coupled with a promise to get unemployment to 4%? Will he commit to the OECD’s agenda for improving productivity? Will his Tax Working Group look at corporate and savings tax setting? Alex Tarrant sat down with him to find out.

Monetary policy

This is an interview so there’s no excuse in not beginning with Monetary Policy. Labour is is proposing two key changes to New Zealand’s settings. The first is shifting from the Reserve Bank Governor’s sole charge over the final decision setting the Official Cash Rate and moving to a rate-setting board. Labour wants people from outside the Bank to sit on this board alongside the Bank’s governors. One concern is whether we’d have the depth of talent of candidates for such an outfit not connected to the large banks or businesses.

Robertson reckons we do. “We’ll be looking towards people with monetary policy expertise, in academia. We know that there are people who have served boards before, who have a strength and a knowledge and an understanding of monetary policy,” he says.

“The two ideas we’ve got [for Monetary Policy] are linked, in the sense that we do want to broaden the objectives of the Bank, and so therefore we’ll be looking for people who can bring some knowledge and expertise in the wider macro economy – the way in which employment is going.

“So, I think within that scope, we do have a pool of people. It’s a little bit like the argument when New Zealand moved to create the Supreme Court; there was this, ‘oh my gosh we don’t have people who can do this’. Of course, we do, we need to build their expertise up, but we’re very confident that the people are out there.”

One of the planned appointees under Labour’s plan is a Treasury representative providing a liaison between the Bank and Treasury at rate setting meetings. While not a voting member of the board, I ask Robertson whether he’s confident there won’t be a perception that the Minister of Finance will effectively have some sort of input into monetary policy decisions.

This person would be expected to provide a clear understanding of the broad government fiscal objectives and Treasury’s economic perspective, he says. They’ll be “there to provide information and be a conduit, but they’re not part of the decision-making apparatus.”

“The [OCR] decision is still being made by the Bank and the external people that we’re bringing in. We want the maximum amount of information to be available to those who are making this decision. And we want to make sure that the flow of information is good,” he says.

“We’ve worked hard here to keep the independence of the Bank. We’ve got the balance of people, so that the Bank is still able to do its job, but we’re bringing the outside perspective in.”

Employment target

Now to the main change Labour is looking at – adding full employment alongside inflation targeting as central mandates. Robertson has said neither is going to be more important than the other, which I want to ask him about. Meanwhile, we’ve already got a way to determine whether the Bank has met its inflation target (the target band).

Has he had any more thought on whether to add something similar for the employment mandate? After all, Robertson said in his conference speech earlier this year that Labour would work towards getting the unemployment rate to 4% within its first term.

“The most important thing for me is, ensuring that the Bank is having active consideration of the impact of monetary policy on employment. Now, we’ve got a clear goal to see unemployment reduced down to 4% within our first term,” he says.

I jump in: Is that not a goal now? If we don’t get there, then has the Reserve Bank failed its mandate?

“No. And I’ve been very clear, the Reserve Bank is not tied to that specific percentage,” Robertson replies. “We all will have failed…that will be a collective failure – not that it’s going to be a failure, it’s actually going to happen. But we’re not saying the Bank is solely responsible. It’s about making sure that when the Bank is making its decisions, it’s looking at the health of the wider economy.”

The exact wording of the legislation change, and subsequent Policy Targets Agreement is still up for discussion – Labour doesn’t want to be unrealistic with its goal. “But I think everyone’s pretty clear that, inflation control remains absolutely essential for the Bank, but it is capable of walking and chewing gum at the same time.”

To me, that sounds like inflation targeting will therefore be held above employment in terms of this ‘battle of equals’.

“I think that’s maybe because that’s what we have now,” Robertson says. “And so therefore people are coming from that as the basis. But, if you look to the US, they make the decision…weighing up those two elements. If you look to Australia, they make the decision weighing up a range of criteria. So, it is possible, it’s done elsewhere. It can be done here.”

The next Governor

We move on to choosing the next Governor. This is something Steven Joyce is staying out of until after the election (if he gets back in). Robertson has attracted a few recent headlines saying he wants a say on who the new governor is. So, is he happy with the current set-up where the Finance Minister can veto a board recommendation, but has no other power over the process?

“I’m not proposing any change to that,” he says. “I respect the independence, it’s a very important relationship.” One reason he has been talking about Labour’s designs is to give a heads up to anyone that applies for the job about where he’s coming from.

Robertson was concerned that he wasn’t consulted when Steven Joyce signed the Policy Targets Agreement with interim governor Grant Spencer for the six-month period following the election. As it happens, he agrees with six months of the status quo. But, “when you’re in that period, immediately before the election, I do believe that it would have been better to have had some input from the Opposition in that.”

Grant Spencer’s 1-3% target with a 2% mid-point will remain in place over the six months post-election. “We’ve got to take some time to get ourselves in and then have the discussions we want.”

How about the job description for the next Governor – is he OK with that? “Yes, but, as I say, the reason we gave the speech was to make sure that people were aware that, should we be elected, this is the direction we’re going in. The job description is what it is, as it stands today.”

And, finally on this, he’s happy that financial traders will understand Labour’s position on this dual mandate? They won’t get confused by a 4% unemployment rate target a Labour government has, even if the Bank’s out there saying the non-accelerating inflation rate of unemployment (NAIRU) is 4.5%?

“We’ll discuss this in good faith with the Bank,” he says. “The exact wording I’m happy to make sure that we sit down and make it workable. One of the reasons we did this was…to help with market certainty. We certainly know from overseas, some of the other things we’ve talked about, like publishing the minutes of the meeting is actually really welcomed by market analysts because they have a lot more information. So, I am confident. And in the end, it will come down to what we can negotiate and put into the PTA.”

Export growth

Onto the broader economy. I’d asked Joyce about that goal to grow exports from 30% of GDP to 40% by 2025. It’s not looking like happening. Does Labour share the same ambition, and if so, how would they do things differently?

“We want to see exports lift. The value of exports at the moment hasn’t even got back to where it was in 2014, so we’ve got issues in terms of lifting that value,” he says. The issue goes hand in hand with productivity.

“What we’ve got to do is, what’s bogged New Zealand down for a long time, [which] is, ‘how do we drive the diversification of our economy?’ Which goes alongside, ‘how do we add value to the economy?’ For me, the starting point there, is around research & development and innovation,” Robertson says.

“We’re still well below the OECD average – private sector R&D’s about a third of the OECD average. Clearly, we’ve said R&D tax credits, we want to make sure that actually there’s some certainty of investment. For large businesses, they’ve been telling us that is something that they want. It will then enable them to start pushing themselves up the value chain.”

Free trade & TPP

How about free-trade within the export story? Labour wants to renegotiate the TPP 11. If they don’t get what they’re after, will they walk away? Or is there room for compromise?

“What we want is to be able to have something that everybody else who’s asked for it, in that agreement, has,” Robertson says. “Which is the ability to be able to protect the sale of residential properties…”

“That’s the one that I’m focussed on. I know that there were some concerns around intellectual property issues as well, and biologics. We would have to take some briefings about that. But that’s the one that has been the major sticking point for us.”

Could there be room for negotiation? “For me, that is still a bottom line,” Robertson says. Labour would still need a briefing from MFAT on the issue. But, “I’ve experienced long enough, being around trade negotiators, and around this particular negotiation to have witnessed many false dawns, and so I think we can take the time to look again at what is possible for us. I’m not going to make a statement today about…it is this, or it isn’t that. Our position has been clear – we can’t accept the TPPA, as it stood, without the ability to have that [residential property] clause.”

He wants to add another point on trade as well: “We are committed as a party to quality trade agreements for New Zealand. We showed that the last time we were in government. So that remains. And there is huge opportunity out there in the EU, and other parts of Asia, that we can start to build that up. While the TPP and the situation there is what it is, there is an enthusiasm in the Labour Party to continue to negotiate important agreements for our exporters.”


Productivity. It’s one of Labour’s big criticisms of the National-led government – quite rightly too when you look at the stats. What would Labour do differently, then? The OECD when in town a few months ago provided us with five suggestions they reckon could get things going again. I put them to Robertson.

Number one is narrowing screening of foreign investment and reducing compliance costs – ie boosting predictability for foreign investment – what are his thoughts on that?

“We need foreign investment in New Zealand – there’s absolutely no doubt about it. We know the pool of capital that we have in New Zealand isn’t strong enough to sustain the things that we want to do,” Robertson replies. “We’ve been very clear about the areas that we’re not comfortable with, which is particularly around land and iconic land.”

“If there’s a way of streamlining the kind of investment that we want, I would most definitely be open to that,” he says. “But we’ve got those rules and we want the Overseas Investment Office to implement those rules as they should be.”

The second suggestion is enhancing local government incentives to accommodate growth – sharing the tax base linked to local economic activity. Previous leader Andrew Little was a fan of the ‘GST for the regions’ policy – is that still in the works?

“It’s certainly not our policy,” Robertson says. “What we have been doing is talking to Local Government New Zealand about whether there are some possibilities for revenue sharing, particularly where there’s value uplift in those regions from economic activity. We haven’t settled on a policy in that area, and so while we’re certainly open to the discussion, it isn’t our policy at the election.”

I add that this suggestion also includes user-charging for infrastructure and congestion charging. Phil Twyford’s quite keen on the first, I know, and the second also sounds familiar…

“Exactly, and we’ve been very clear that is one of the tools that should be in the box, along with the infrastructure bonds that we’ve also talked about,” Robertson says.

Number three is increased fiscal support for business R&D. We know Labour is in favour of tax credits. Does that mean National’s R&D grants will be gone? “No…there’ll be a mixture of them. We still think there’s a place for the grant-based system. But…for us, if you have a tax credit you’re clearly not going to be spending as much on grants. But there is still a place for grant-based funding.”

Universities & research institutes

Robertson says he’s big on the relationships between Crown Research Institutes, universities and the private sector. It’s an area of work he was in at Otago University before becoming a politician. “And I still see a lot of opportunity in there. It’s not necessarily about funding…it’s actually just about the mandates of those bodies and how they work together.”

New Zealand in general doesn’t think enough about the connections in our tertiary and research sectors. “We’re not that huge.” Robertson references presentations by the likes of Shaun Hendy on how countries of a similar size to New Zealand build much better and stronger connections between the different research institutions.

“In part, that’s because of the model we’ve got. We’ve got this overly competitive model in our tertiary sector. One of the first lines of our tertiary education policy is about building a more collaborative sector – the research and innovation side of that is really important.”

Number four on the OECD list is reviewing competition law to allow the Commerce Commission the ability to conduct market studies – something he’s open to looking at.

Corporate tax

And number five is what I’ve been wanting to get to, really. The OECD tells us that our high corporate tax rate reduces capital investment – they want government to review corporate and personal income tax rates and look for potential new tax bases. Now, Jacinda Ardern has ruled out raising the corporate tax rate. Would Labour consider cutting it?

“It’s not in our plans,” Robertson says.

What if a hypothetical tax working group were to recommend it?

“The job we’re asking of the Tax Working Group is about the balance in the tax system, particularly in how we get the balance right between speculation in housing, in the way in which we look at assets versus the way in which we look at income. We don’t have any plans at this point around corporate tax.”

Tax Working Group

We had to touch on tax – I ask Robertson whether Labour will stop ruling things out when it comes to parameters for this Group. So far, we’ve had the family home ruled out from a Capital Gains Tax, the land beneath it ruled out from a Land Tax, and we’ve just had his comments on corporate tax.

“This is the thing,” he starts. “The questions get asked. Jacinda has been very clear from the beginning that the family home and all things associated with the family home are not part of what we’re asking the working group to look at.”

“I understand for people it’s a bit difficult, because what we’re trying to say is, here’s a direction of travel that we’re going in, and we want therefore the expert working group to come back to us and say, are we going far enough? Is a bright line test of five years far enough in this area?”

I ask about excluding the family home. Labour talks about fairness across the tax system regarding income, assets and wealth. Owner-occupied housing is the single biggest asset held by New Zealanders which isn’t attracting tax. How can you leave it out?

“Yeah, but the point is, that we’re making a decision that says that your home is yours, it’s an important part for people of the security of their lives to know that it’s theirs, that that’s how we build strong communities,” he says.

“You look around the world. Let’s be honest. Most countries that apply capital gains tax do exclude the family home.”

I put to him this still leaves open the incentive for people to keep upgrading the family home in the hope of a large gain when they sell it, rather than putting capital elsewhere. “That’s cracking a different nut, though,” he says. “What we’re talking about is property speculation, not about what people do in terms of owning their own home.”

Savings tax and KiwiSaver

I put to him the idea that instead of talking about CGT, or charging imputed rents, we deal with levelling things up by reducing the tax burden on savings – something I also put to Joyce. Can he see a shift to a time when, if I put money from my wage into KiwiSaver, I won’t attract income tax on that portion of my wage, and only on either when it earns a return within KiwiSaver or when I withdraw it all? (Or just once during the process, rather than the status quo of twice.)

“Again, that’s not in our plans, and it’s not a policy that we’ve discussed in depth,” Robertson says. “We do want to encourage savings, and one of the things that I want to look at when we get in to government is, how do we reach the group of people who haven’t joined KiwiSaver?”

“Now, they do tend to be low-income New Zealanders, and therefore we’re going to have to think very long and hard about what it is that will help them in. Clearly, lifting their wages will help them come into the scheme, but no, at the moment we’re not looking at the tax regime on savings.”

Would the working group be looking at it, perhaps? “It isn’t something we’ve thought about at this stage.”

Just back to KiwiSaver, what are his thoughts on compulsion? “I still believe in everyone being in KiwiSaver – universal scheme,” he says. But he’s holding off from compulsion.

“We’ve now reached a point where those that aren’t in the scheme are largely made up of the lowest income New Zealanders. What we’ve said is, we now want to take a look at what is the best way to bring them in? I don’t want to click my fingers and say that it’s compulsory to a group of people who are looking at us saying, ‘I’m just making my way at the moment, I’m just meeting my bills’.

“So, we will look at that when we’re in government, and find a way. But the commitment to every working New Zealander being in KiwiSaver is something that we still hold.”

Fiscal plan, spending priorities

Labour’s fiscal plan has been in the news recently, with Robertson batting back erroneous suggestions from Steven Joyce that there’s a hole in it. The conversation has moved on to what room Labour might have for spending above and beyond what they’ve already promised to the government’s current track. He’s talked about efficiencies and reprioritising spending from some areas to others. Any updates on that?

“I think what every government does when it comes in, is it takes a long hard look at what the previous government’s been doing. And there is invariably going to be things that we won’t carry on with – that’s the nature of every government coming in.”

Such as?

“An example could be, the Social Investment Agency that the government set up. We don’t believe that the way they’re implementing that policy is sensible. I would have to be convinced that a stand-alone agency was the best way to do this.”

I put to him that he’s mentioned prisons before.

“We’ve also looked at both the corrections budget and the defence budget. They’re mainly large-scale capital items that we’re talking about there. But, certainly, our goal would not be to be having to build more prisons at all. And clearly the defence budget, while we’ve got to make sure we maintain our defence force, I’d want to have a very long look at the $20 billion plan.”

Do we need to move on from this recession affair with looking into every potential million dollars of an opposition party’s policy platform?

“I think voters have a right to know what our priorities are,” Robertson says. “And that’s exactly why we put the fiscal plan out in July – I might add – and then updated it after Prefu. Because, we wanted people to know what our priorities were and what our commitments were. We’ve put that out, it’s fully costed, it adds up. People will then make their judgements.”

Why change?

I finish by putting a few numbers to Robertson from the Reserve Bank’s latest projections in its August Monetary Policy Statement. GDP growth forecast over the next three years at 3.1%, 3.6% and 2.9%, annually; the trade-weighted exchange rate dropping from 77.5 to 76; the unemployment rate constant at 4.5%; and a household savings rate as a percentage of disposable income going from negative 1.6% to negative 0.7% – getting better, at least. Why change?

“There are some good, solid indicators in there,” Robertson says. “But then there are other ones, like GDP per capita, which is not so good. We’ve still got far too many long-term unemployed, we’ve still got 100,000 underemployed people. We can be better than we are.

“The argument has never been that those high-level indicators aren’t good. The argument is, are people getting a fair share in prosperity? Are we actually making sure that we’ve got a long-term plan for sustainable prosperity? And we all know that the other numbers there that aren’t so good are productivity numbers, export growth…those are the numbers which will be most important in driving improved living standards for New Zealand.”

“The question for me is, what’s next for New Zealand? And what’s next for New Zealand needs to be, lifting the value of what we do, improving our productivity, lifting our skills, making sure that we’re generating high-paying jobs. Those numbers don’t deliver that to me.”