RAW DATA: Departing BNZ boss Andrew Thorburn talks CEO pay, LVR and NZ's 'rock star' economy
Q + A TRANSCRIPT: ANDREW THORBURN Interviewed by CORIN DANN
SUSAN The Reserve Bank says its restrictions on low deposit borrowers could be removed by the end of the year. Deputy Governor Grant Spencer told a business audience this week that pressure in the housing market has eased but the bank's still concerned about the risk of resurgent prices. Rising interest rates are doing their job too. Corin is with Chief Executive Andrew Thorburn for his perspective on that plus how the rest of the economy is shaping up.
CORIN Thank you Susan, Andrew thank you very much for joining us. I'll start off with a direct question. Do you think New Zealand's got a rock star economy as some famous economist or infamous [HSBC] economist put it?
ANDREW THORBURN – BNZ CEO
Well I think rock star might be overstating it, that’s a bit trite, but if you do look at the fundamentals of the New Zealand economy today on almost all counts, it's pretty positive, and so over the last five years as many economies, including Australia and around the world, have struggled post GFC with some very severe issues, I think you can say we've navigated that pretty well and today as we sit here clearly some issues, I think you'd have to say it's a pretty positive economy.
CORIN Do you feel confident that New Zealand might be entering a phase where it's not going to be in this boom bust cycle of years gone by, and that as the government talks about some sort of sustainable long term recovery is in store?
ANDREW Well I think so. You clearly you have to be concerned about the uncertainty and instablilty around the world and that’s going to be with us I think for a prolonged period, but I think if you can get the fundamentals right, get the fiscal surplus being achieved, keep interest rates low and slowly increasing, and keep the productive sector, indeed all businesses strong, get the right capabilities and skills and get the infrastructure right. Now all those things I think are heading in the right direction today for us. If you get that right and then you have ambition. Right, you’ve got to have people, business owners, and people generally who want to improve, who want to get better. Right, so I think if you get the basics right and then you get a bit of hunger and ambition from within people, then you’ve got a chance for us to go from good to great.
CORIN What's your experience with Kiwis since you’ve been here, in this second stint. Are they hungry, are they ambitious.
ANDREW Well I don’t think enough, look I love New Zealand, I've been here 20 years and I go back this time a real New Zealander with a passport included, and New Zealand we've decided for our family, is our long term home, so there you are, there's my vote. But I do think there's been around more ambition more hunger. I think we live in one of the best countries in the world and I think my earlier point, one of the strongest economies pound for pound, but I think we can be a bit complacent, and I think if you look out the next 10 years there's opportunities for countries like ours, and I think unless we keep pushing ourselves, businesses and government and individuals we're going to risk…
CORIN Give us some examples, what do you want to see, what areas do we need to be more aggressive?
ANDREW Well I think what we want is more people wanting to start their own businesses and to grow them, and to look to export, to grow them in services based industries where we can get a real advantage, where we're not just competing on price against large scale manufacturers out of Asia, and they're the key things I think we need to see more business owners and more entrepreneurs.
CORIN And is that the individual or is it the government settings?
ANDREW Well it's both, right? It's both, I mean this is a broad complex economy and it's the whole ecosystem. So you definitely need it to be easier to set up and run a business, and I still think there's too much red tape and regulation around that. You need the right capabilities and skills which is what gets provided through government and non-government sector. But then you do need people to want to set it up, take some risks with their own time money and capital and reputation in order to win and to succeed. So you definitely need the ecosystem there, and we're okay with all that. I think access to capital needs to be something that’s a bit easier, and better capabilities and skills, but I think we need just a bit more energy and urgency.
CORIN Well the incentives are there aren't they, I mean take yourself, you’ve got no secret a two million dollar base salary in the new gig. That’s strong incentive. I mean the Warehouse recently made this point about the ratios, you know we're talking 20-30 times what the average wage is. Is that a problem?
ANDREW Look I can understand why this is a real sensitivity. You know I really can, and of course your salary gets published, it's very transparent, and I am very aware, I think just as Mark Powell said, of how significant that is, and with that comes responsibilities to manage and lead your company well. Now in the case of NAB we have 42,000 people. It is dependent on me and my team to make the right decisions for the long term, safety and security of their jobs, and for our shareholders as well.
CORIN So are you comfortable with it?
ANDREW Well I wouldn’t say I'm comfortable with it, but you know you have to make sure that you can hire the right people, it is a global business, you need capability and skill and experience to be able to run a bank today, especially a bank the size of NAB or indeed BNZ. So certainly you want people who are skilled and that are the best in the world. Like we don’t want that to be compromised. So there has got to be a market relativity. Now the other point I want to make though Corin is, the Board spoke to me and my ingoing salary is 20% lower than my predecessor, and my replacement here in New Zealand is the same. So what I think they’ve tried to do is send a bit of a message to say let's lower this somewhat.
CORIN What about at the other end of the spectrum, the average wage. We've just had this debate with Steven Joyce. It's too low isn't it in New Zealand? How do we get that up? How do we get more returns to wage earners?
ANDREW So I think this is an issue. I think one of our issues in New Zealand is that we have a low wage economy and I think if we want to break out of that cycle that is a critical thing to focus on. But that does depend on – the key thing is capabilities and skills. People being trained and coming out of schools and tertiary institutions with the right training and skills that they need for the future, and then you need the drive and energy and the hunger to succeed for yourself. I do think when it cuts down to it, I mean I started, I went to a public school right, and I went through university, and I got a job and I started at the bottom and then you just learn from people and you work hard. Now I know that’s no guarantee, but I do think there is no substitute for internal drive and wanting to improve yourself and improve your lot in life. I think that has to come from within you.
CORIN Let's talk about housing. Often the housing market in New Zealand is talked about as being overvalued. Do you worry about a bubble forming, I mean you’ve got a lot invested in it obviously?
ANDREW Well our total balance sheet is quite well diversified, so I'm not overly concerned about that, but I do think when you look at the price and income ratio it continues to rise, I think that is a concern, but where you’ve got net immigration continuing to go up and you’ve got a real issue in Auckland where the supply of housing has not kept up with demand, you're gonna see upward prices, and I think that is a concern because less and less people can afford a home, and I think it's causing lots of productivity issues in Auckland. Now I know a lot of people are working to solve that, but this is a long term issue.
CORIN Would a capital gains tax help?
ANDREW Well I don’t think there's a single silver bullet, but I think reform of the tax system, fundamental reform over time, will help, because at the moment the tax signals to invest in housing are disproportionate and probably excessive. So we're getting what we intend to get because people can deduct interest and other charges and they can't do that for lots of other things. So what we need is people over time not just to have their wealth invested in housing, that’s not diversified, so it's good to see more entities being listed on the stock exchange, Meridian and Genesis and others, and I think over time, and KiwiSaver, people can broaden their ….
CORIN One last question on the LVR, we heard that the Reserve Bank might consider taking them away, those restrictions on low deposit lending. What's your view on that? Have they been successful?
ANDREW Well I think we've gotta give credit to the Reserve Bank for managing the economy and keeping the banking system safe, and I think they’ve made most calls right. Now we did have some debate around this one, because my view is that the fundamentals of demand are driving up prices, and so until supply corrects that we're not going to be able to have a permanent response, but it's good to see them listening and reviewing and I think the indications are that house price inflation, particularly in Auckland has come off a little.
CORIN Andrew Thorburn thank you very much and good luck with the new job.