Shane Taurima: Prime Minister, good morning. Thank you for joining us. You've just returned from overseas. How concerned are you about the state of the world economy, especially Asia?
Prime Minister John Key: Well, I don't think I learned anything new over there. The situation that we're seeing in Europe and the United States has been there for four years, and that is that they've got a lot of the things that you'd want to avoid here in New Zealand - high levels of government debt, high levels of bureaucracy, fundamentally ageing population, inflexibility in their labour market. So if you look at the government's programme, it's been very focused on lifting competitiveness, making sure that we can sell our goods to the world and succeed. But there's no getting away from the fact that those 21 leaders that sat around that table are reflecting what they see, which is it's been four years of long, hard grind, and there's more in front of us.
Shane: So, how's Asia?
John: Well, there's a mixture of views there. It's certainly slowing down. We got a briefing from Christine Lagarde, the head of the IMF, and she indicated, look, China's going to be a bit slower this year than they originally thought, although she thought that they would be stronger in 2013 - picking about 8.25% as their growth rate. Overall, a number of leaders I spoke to were doing well. So, for instance, the Philippines. Still very, very, strong there.
Shane: So certainly slowing down in China. How's that going to affect us here?
John: Well, it depends on how far they slow down and what the real impacts are. They've announced this week a very big package of infrastructure spending and domestic stimulus. So I think the Chinese will be very keen to make sure they maintain a growth rate of around about 7.5%, 8%. Now, that is lower than what they've achieved over the last decade, but they're becoming a more developed country, so it's always harder as time goes on to maintain those stratospheric rates. But I think the big worrying factor, if there is one, is that a quarter of our exports go to Australia. So they are our biggest market. Australia is hugely dependent on China because China buy a lot of their minerals. Number two, in our case, is China itself, and then third is the United States. So while Europe matters to us - obviously it's still an important market - the big issue, of course, is that if Europe slows down, that slows China down because China's biggest market is Europe. So we're all interconnected in this global world.
Shane: We're interconnected. So what can we do about it here?
John: We can do the things we have been doing. So if you look at the government, you'll get lots of people - and I have no doubt David Shearer will come on the show soon, click his fingers and say all these wonderful things can happen.
Shane: So what are you doing?
John: Yeah. So let's look at it. We have undertaken tax reform. So, we have a tax system that's pretty much now, I think, the envy of most countries in the world. Three-quarters of New Zealanders pay 17.5% or less. We have broad-base, low-rate taxation. Secondly, if you go and have a look at what we're doing around skills development, innovation and science - again, increasing the expenditure that's there, starting to move up that value curve. It keeps going. Building of infrastructure. Again, hugely important that we have the infrastructure, whether it's ultra-fast broadband, water, roads, you name it, to support economic growth.
Shane: Let me stop you there, because you've just listed three things. Great.
John: I can list six if you want, because that's really been the government's programme.
Shane: Let's deal with those three, though, because while you've been away, there's been a number of announcements. We saw it in Greg's intro. Just last week, 120 jobs lost at the paper mill at Kawerau.
John: Yeah. So let's take a step back and say -
Shane: I can give you a list of six things. There are a lot of jobs being lost, Prime Minister. And the policies that you're giving us, does it mean that they're not working?
John: I can give you the list of the 50,000 jobs that we've created over the last couple of years. I can give you the indications that New Zealand is growing faster than most other countries. So we grew at 1.1% for the first quarter of this year. That's the third-highest rate in the OECD. The point here is we can't magic away the European recession or the US recession or the issues the world faces. What we can do is say, 'How does New Zealand succeed on a global stage?' And the answer is when we're competitive, when we're productive, then we can sell things to the rest of the world. So, if you take Kawerau, why is there a reduction in demand for pulp and paper? Well, people don't buy their newspapers. It's the same reason why APN have got the New Zealand Herald for sale. It's the same reason why Fairfax's print media around the world is struggling. It's because people are not going to the newspaper in the same way they used to. They go online, and so that's why the government's supported ultra-fast broadband.
Shane: So, we're talking about the Kawerau paper mill because the Australian Government, for example, they've given Norske Skog a subsidy to keep it open. Why aren't we doing the same for Kawerau?
John: We could do that, obviously, but -
Shane: Are you?
John: Well, this is the point. New Zealand's a small economy. It's flexible in the world. In any one given year, this economy creates about a quarter of a million jobs and loses a number slightly smaller than that. We create net positive jobs. So if you want to preserve what we've always done, of course you can do that, but that will deliver you an economy which is likely to produce not what the world wants but something quite different. Under that strategy, we'd still be making cars and we'd still be selling legs of lamb to Europe instead of racks of lamb and better cuts and moving up the value chain and Fonterra producing nutraceuticals and all of those things. So all I can say to you is I go round lots of businesses. Now, I'll tell you what's making those export businesses work, and that is because they are addressing the issues that they need to address. They're competitive. They're investing in technology.
Shane: But it still doesn't help these job losses, and let's break it down even further. What do you say -
John: But there will always be job losses, Shane. There will always be parts of the economy where, for whatever reason, there's a change in pattern. So years ago, we all did different things from what we're doing today. The point for New Zealand is if we're going to sell more to the world than we buy from the world, if we're going to earn our way in the world and not spend more than we earn, then we have to have a highly focused, competitive economy. And we need to have three things: access to capital, access to markets and access to skilled labour.
Shane: Barack Obama's going for re-election on the back of his government saving the auto industry. We talked about Australia giving subsidies. Just this week South Korea announced a government credit for small businesses. If it's good enough for our trading partners to be doing these things, why aren't we?
John: So, let's have a look at some of those places.
Shane: But why aren't we?
John: Well, in the case of the auto industry, that decision was made a long time ago for New Zealand not to have that on a subsidised basis. And, yes, that caused pain and dislocation for the industry. But it also bred a new competitive industry. So let's look at wine. Years ago, it was a totally protected industry. Yes, we got rid of all that protection, but what did we build? A world-class, highly successful industry based on new types and varieties.
Shane: But you get my point, though, don't you? I'm talking about government taking or coming up with direct initiatives like you did, if I can take you back to 2009. You held a job summit. You came up with a nine-day fortnight. You came up with a lot of things like, for example, Community Max, and there was a list of them. What are you doing now, though, Prime Minister? Now.
John: If I just take you back to your point, many of the countries you are pointing to that are paying out these levels of subsidies are backed up by governments that are hugely indebted. So the whole problem in Europe, the whole reason why you're seeing countries like Spain, like Greece and right through Southern Europe in the sort of mess they are is they have huge levels of government debt. So the answer in New Zealand is not necessarily coming up with a make-work scheme funded off taxpayers' taxes. It comes off New Zealand having a competitive industry, making sure that we have flexible labour markets, making sure that we are investing in things that will make the economy go faster, like science and innovation.
Shane: What's changed from 2009 to now when you had that direct approach to help protect and create new jobs? It doesn't seem like you're doing that now.
John: I disagree with that. In 2009, what was really required was we were in a situation where there was huge global uncertainty. Countries all around the world decided that they would have direct stimulus plans, and yes, we spent some money on, effectively, make-work schemes. Those sorts of schemes are still there now, but they're in a different form. But what we've really been trying to do is shore up the foundation stone of which New Zealand industry is based. So if you want to reform the Resource Management Act, if you want to make sure that labour laws are flexible, if you want to make sure that we have access to international markets through FTAs, if you want to make sure we have skills and people coming out of our education system with those skills, then you build a highly productive, long-term economy for New Zealand which succeeds. If you don't and you focus on those small minutia which is all really about essentially ensuring that poor behaviour or, ultimately, inflexibility is embedded in your economy, you eventually will go broke.
Shane: Let's talk about water. Another New Zealand company, Mighty River Power, is it on track to be sold early next year?
John: That would be my view. The government is going through a consultation process at the moment. It's quite a narrow consultation in relation to shares plus, which was an idea promoted by the Waitangi Tribunal. It wasn't fleshed out by the Tribunal. The government is very firmly of the view that it wouldn't work and that it isn't appropriate, or if a government of any day wanted to register those sorts of interests and rights that are reflected in shares plus, you can do it in another way.
Shane: So let's just confirm that. The consultation you're about to embark on is just about shares plus?
John: Correct, and what people are conflating here is two different things. There are Maori who will have a range of views on what their rights and interests are when it comes to water -
Shane: And one of those rights or, sorry, one of those views is that they want a national framework. Is that on the cards?
John: Well, let me just finish this point. So they are having a debate about the rights and interests of water as they see it. But there's a second thing going on, which is does the sale of shares make any difference in terms of a government wanting to recognise those rights and interests? The answer to that is no. The government was very clear at preserving that capacity by taking over what was the old Section 9 of the SOE Act. So any relationship between the Treaty partners, between Maori and the Crown is well and truly preserved. Whether we want to register a particular right or interest is a matter of the government of the day.
Shane: So this framework that they want, are they going to get it?
John: There is a framework of sorts. So if you look at Treaty settlements as an example, and this sort of fits -
Shane: But that's not the framework they're talking about, are they? They want a new framework, and they were quite clear about it at their hui on Thursday.
John: I don't think there is clarity, actually. If you go and have a look at the media reporting by Friday, it was already quite fractured in terms of their views. So the government has a general framework for dealing with these water rights and interests issues. It's been doing that for four years. Back in 2009 when we came in, we set a framework for what co-governance, for instance, of waterways might look like. We've been actively engaging in consultation, discussion and recognition of certain rights and interests. But if you're saying what some Maori are saying, and certainly the Maori Council seems to be promoting, which is a national settlement and a national hui.
Shane: Well, the Maori King is too. It's not just the council. It's the Maori King too.
John: And he's welcome to have that view -
Shane: But they're not going to get it. Is that the case?
John: Well, the government doesn't recognise this as a national issue, and the reason for that is the Waitangi Tribunal doesn't either. It says water rights are a local issue. So we're more than happy to work with local iwi.
Shane: It looks as though it's going to end up in the court regardless, doesn't it?
John: Well, it may do. I can't stop someone taking an application to the courts against the Crown, but that application would have to be about whether the sale of shares in any way impinges the ability or impedes the ability of Maori to register their rights and interests in water. And the answer to that is it doesn't. And as I said in the paper yesterday, if it did, if the sales of shares impacted on that, then you would be saying that iwi that have water that is used by Contact Energy now no longer have any capacity to register rights and issues because we've sold 100% of it.
Shane: Well, it sounds like you're pretty confident that if it did end up in court over the issues of shares, you'd win.
John: Well, I'm very confident that we've taken the best advice we can. We've acted on that advice. We've had a long-term period where we've been recognising rights and interests. Where there is a fundamental difference is what some iwi believe those rights and interests are. And I think if you take the debate all the way back, my own personal view of this situation is that if you go back to 1840 when we signed the Treaty, the Crown as one partner agreed to preserve what were effectively established property rights around land, forestry and fishery. What we also, I think, then said was let's also make sure that all New Zealanders enjoy the same rights of being a New Zealander, the same capacity to access those rights. But I think at that point we also said let's together, in partnership, build a modern-day New Zealand. So if you accept that viewpoint, then I think you have to accept that elements like water and wind and the sun and air and fire and all these things, and the sea, along with natural resources like oil and gas, are there for the national interest of everyone. They're there for the benefit of all New Zealanders, not one particular group over another.
Shane: And on that point, can I just ask, do you still rule out not legislation to say that nobody owns water?
John: I believe very strongly that the common law position supports the government's view. If someone was to go to court, and that situation has been in place in Canada, that is a very long process. They've been there for decades. Whether the courts -
Shane: Do you still rule it out, though?
John: I don't think it will be necessary, because the government's view is we are consulting in good faith on that very narrow point. Unless there is some particular reason why we believe we've got it wrong or we can't answer the particular questions about that narrow point of shares plus, we'll be progressing towards the float of Mighty River Power and Meridian and Genesis.
Shane: Finally, Prime Minister, I want to talk to you about your standards for your ministers. Is lying a sackable offence for members of your cabinet?
John: The test for whether someone can be a minister is whether they -
Shane: Is lying, though? Is that acceptable?
John: The test is whether they enjoy my confidence. And if a minister tells me, 'This is my position, and this is what I've done,' I accept their word in good faith, unless it's proven otherwise.
Shane: Let's take a look at this clip.
Jessica Mutch to John Banks:
Did you know that Kim Dotcom was making a donation to your mayoral campaign?
John Banks: No, I didn't know.
Shane: Mr Banks says he didn't know about any donation. This week's release of sworn statements state otherwise. Do you believe he was telling the truth there?
John: Well, what I can tell you is there is a range of different views there…
Shane: But do you believe him? Do you think he was telling the truth there?
John: We've asked directly the questions. We've been given assurances, and I accept the minister at his word. Let's understand what's happening here. This is a politically motivated attack by Labour.
Shane: So you believe he was telling the truth?
John: If it's not politically motivated. Let's just go through this point.
Shane: It's a genuine question, though, Prime Minister, and it's an easy question.
John: And I accept the minister at his word. And the point here is there will always be people with a different range of views. It's important that people comply with the law. So, in my opinion, that law is very badly drafted, which is why my government's going to fix it up. And if the Labour Party really believed in this, and it wasn't just a way of getting to the government, they would have changed the law, and they didn't do that.
Shane: Going back to telling the truth. This week, we had a release of sworn statements that said otherwise. Are they not telling the truth, Prime Minister?
John: Well, that's their view, but it has to be seen in the context of the law. The fact that someone tells you they may make you a donation doesn't mean under the old electoral law that you know that they have.
Shane: This isn't about the issue being you. All I want to know is having read the police report, whether you believe Mr Banks when he said -
John: I haven't read that police report, and I'm not going to because I don't need to. I rely, as any prime minister would, that I enjoy the confidence -
Shane: Why wouldn't you read the police report?
John: Because it's not my job to do a forensic analysis. What I can tell you is the law doesn't work. What I can tell you is this is a politically motivated attempt by the Labour Party to get at the government. Fair enough. That's called politics.
Shane: So you believe him even though others say he was lying?
John: No, what I'm saying to you is accept his word. I accept that the law is very ambiguous, and I accept that the Labour Party are using this as a politically motivated attempt to get to the government. Because they're not going after - This is a guy that lost the mayoral election. They didn't try and test this out after he lost. They didn't test it out for every other candidate. They're not testing it out around the country. And, by the way, when they changed the central government law around donations, they didn't bother to do it for local government. But today they care about it, and that's because it's politically motivated.
Shane: Prime Minister, we have to leave it there, but we do appreciate your time. Thank you for coming in.
John: Thanks very much.