GUYON Thank you Prime Minister for joining us on the show, we appreciate our time this morning. Let's start there with the economy and let's take you back to something that you said on our very first show in March. You said that by the end of 2009 or early 2010 we'd be starting to come out of recession, and I quote to you, you said that we would actually be starting to come out of it reasonably aggressively. Is that the situation we find ourselves in this morning?
JOHN KEY - Prime Minister
I think it's a fairly accurate description actually, the second quarter of this year we've already grown, earlier than the Treasury and the Reserve Bank anticipated we would, we don't know the numbers for the third and fourth quarter yet.
GUYON Reasonably aggressively though?
JOHN Well my expectation actually is the fourth quarter will be quite good, third quarter won't be bad either, and obviously we've gotta come into 2010, so I think if you look at it on balance I remember, I think it might have been you stopping me on the way to a caucus stand up once saying that there was a latest economic forecast our unemployment rate would top out 11%. We've now got the Reserve Bank taking the peak expectation of unemployment down to 6.8%. So I think the government has navigated a very difficult pathway. There were those who wanted us to have the slash and burn, I think that would have driven a much deeper recession, those who wanted us to spend a lot, and I think that would have ultimately encumbered future generations. I think we've navigated a good pathway and we've taken the rough edges off the recession and kept people by and large in their jobs.
GUYON You mentioned the Reserve Bank there, but Alan Bollard this Thursday, he compared our situation with Australia and he wasn't that complimentary, he talked about Australia riding a new minerals boom, selling heavily into China, and having avoided recession, and this is what he said about New Zealand - New Zealand has had a recession and the pick up is slower and more vulnerable - he doesn't sound nearly as confident as you are.
JOHN Yeah well let's understand the first thing, we went into recession earlier than pretty much any other country in the developed world because the Reserve Bank put us into recession, and that was to take the edge off the rising housing markets, we actually went in a lot earlier than other countries. The second thing is, yes it's true, Australia does have a big mineral boom, and it does have a big opportunity with China, so do we, our exports increased to China by 62% since we signed the FTA. We've got a different kind of base, it's largely agriculturally based, although minerals do form part of the mix and the Minister's been looking at that whole issue and I think next year we'll come back and talk to New Zealanders about whether there are greater opportunities to lift our wealth.
GUYON They are quite significant opportunities do you think?
JOHN Potentially yes.
GUYON Do you see this as a big part of our step change is the word you keep using, you see the minerals of New Zealand, and Bill English said this week, that we were as mineralised as Australia. You guys are obviously eyeing this pretty seriously aren't you?
JOHN Well I think it's worth taking a stocktake.
GUYON But you don't do a stocktake and then do nothing do you?
JOHN Yeah well let's just have a look and see what's there, there are a number of opportunities that might be out there, iron sands is an example of that, we know that there's coal, we know that there's quite a bit of gold. Now we need to balance and I think this has been a government of balance, we need to balance obviously our 100% pure and environmentally strong credentials against our opportunities on the mineral front, but I don't think we should completely dismiss them.
GUYON That's going to be quite a balancing act for you as Prime Minister and Tourism Minister isn't it, to be digging up potentially parts of the conservation estate in order to actually get our mineral wealth out?
JOHN Well firstly it would depend on where you do it and how you do it. I've argued the case for surgically framed mining if you like, and we've seen that where the previous Labour government actually approved on the DOC estate for Pike River to have such a mine. Now the early attempts to do something there were rebuffed and rightly so, because they weren't structured the right way, but eventually they got there, iron sands actually don't happen to be part of the DOC estate. So let's just see how it goes.
GUYON The mineral wealth is something that we often talk about in terms of the disparity with Australia, and I know that your government has a stated aim of pay parity with Australia by 2025. Go back to Alan Bollard again, he said this week that we talk about catching up with Australian incomes, but we have better chances of taking advantage of their growth. He's right isn't he to hint at the fact that you're chasing rainbows here when you'd be better to ride on their coat tails.
JOHN Well he's right that a strong economy in Australia helps New Zealand, so we should be grateful that they didn't have a deep recession or actually didn't technically go into recession, although I might add they measure their data in a slightly different way, if it was an apples for apples comparison it would be a slightly different picture, but putting that to one side, they are 25% of our exports, they're a huge part of our tourism float.
GUYON Sure it's because they do well, and I don't want to interrupt you constantly, but he's basically saying it's unrealistic to catch their incomes.
JOHN No I don't think he has said that, I mean he said yes it's a big challenge, and everyone would agree with that, we're not trying to lasso a horse that's in a stationery position, we're trying to lasso a horse that's running at sort of full gallop and is likely to do so because of their position in Asia, and because of the natural foundation wealth of that country, but on the other side of the coin it also happens to be the home of our largest source of net migration, whatever the number is, and it's a little unsure, whether it's five six seven hundred thousand New Zealanders living in Australia, we can't ignore that wage gap, if we do our best and brightest will leave.
GUYON Okay and one of the big elements that people talk about there is tax, now I know you've got a review underway, so that you're not going to want to give exact details, but let's keep this broad. Generally you're looking at trying to lower personal and company tax, and fund that potentially by raising consumption taxes like GST, or possibly some sort of property or investment tax.
JOHN Well the mix to the tax regime is possible, I wouldn't rule it out, but nor do I necessarily rule it in. Let's say a mix is possible, let's go away and wait and see what actually happens, there's a lot of different factors out there and I think the Finance Minister was on last week talking about some of those options around the edges of property investments and the like.
GUYON Yeah he said that we would seriously consider changes to the treatment of investment properties. Are you committing to some change there?
JOHN Well what we do know from the tax working group, is round about 200 billion dollars worth of investment in that area, and basically the Crown's lost money on that investment.
GUYON Well they pay no tax.
JOHN That's right.
GUYON And in fact they pull down 150 million dollars, is that fair?
JOHN No, probably on balance.
GUYON Okay, so you're going to do something about it aren't you?
JOHN Well we need to go and look at all that, I'm not going to pre-empt that on the last show of 2009.
GUYON You've said that it has to be fair and equitable this tax review, you've just told me it isn't fair, that they pay no tax because they can organise their affairs correctly, are you going to do something about it?
JOHN That's a basic principle of the tax system.
GUYON So they can expect change in some form?
JOHN Well it's also about an issue that both IRD and other have identified the Treasury, and that is the robustness of the tax system over time. One of the concerns about New Zealand is that we tax labour and we tax capital, and they are by far the most mobile. Now on the other side of the coin we also want to put the right incentives in the economy, and we also very importantly don't want to increase the tax burden, I mean we are running a deficit we understand that, but actually the last thing you want to do is put a big sea anchor on the New Zealand economy, and the more you tax people the more effectively you do that.
GUYON It sounds like there may be some change coming for property investors, what about GST, will you raise GST?
JOHN That's an argument that the Tax Working Group's put up.
GUYON Cos you've previously ruled that out.
JOHN No, what we've said is we'd need to be convinced of a good case.
GUYON But you have to fund these personal tax cuts don't you, somehow?
JOHN Yeah, well again it's about a potential change in the mix, that's a possibility, but I wouldn't put it any higher than that. We need to go and have a look. There's a number of different factors in there, and what is true about New Zealand is, if you take our top personal rate it's lower than Australia's but it kicks in a lot lower, we kick in at $70,000 they kick in at $180,000.
GUYON In fact until you earn $200,000 you pay less tax than in Australia, and they've got a review over there you're gonna have to move aren't you. Are you going to move that top rate down?
JOHN Well one in four New Zealanders who are tertiary qualified now live overseas. We are rapidly &.
GUYON Are you going to bring that top rate down?
JOHN Well we've said we have an ambition to do that, and to get that down to a 33% rate to align that with the company rate.
GUYON Do you think that'll happen next year?
JOHN Let's wait and see.
GUYON That's high level sort of economic policy I guess, can we bring this back into people's homes, and quite literally, because one of the major financial destroyers of people's wealth for thousands of New Zealanders has been the whole leaky homes nightmare. Now there have been reports over the weekend that the government's going to put only 10% into this bill that Councils will foot the bill to something like 26% leaving the homeowner with a 64% of the bill. Is that correct?
JOHN Well firstly what I would say is that the Minister responsible, Maurice Williamson, has actually been doing tremendous work over the last 12 months in this area, and unlike the previous government we have actually fronted up and said look we need to try and find the pathway forward. So what I can say is there's a proposal currently before the Councils, and the way that proposal would in very broad terms work because it hasn't been signed off, is one, the homeowner would always retain the right to sue, if they want to go down the Weather Homes Resolution Service they can do that, but the most important thing is we need to make sure that homeowners have an opportunity to fix their house so that they can move on, either sell the property or do whatever they want. So there will be an option available to homeowners that will ensure that they are guaranteed access to funds, to be able to undertake the repairs in their home. Now there will be a contribution from local government.
GUYON What will that be?
JOHN That's a subject of debate at this point so I can't go into those details.
GUYON More than the 26% that's been in the media so far?
JOHN Maybe, but the important point here is that if we can ensure that a homeowner has guaranteed access to funds, and a guaranteed ability to repay, in other words if they're older they may not have a repayment schedule, if their income is very low they may not have a repayment schedule in a hurry, we can allow inflation and we can allow rising house prices to let people fix their home and actually move on and move out of the situation.
GUYON So are you going to subsidise their loans, pay their interest on those loans, how will that work?
JOHN There's a structure in there which I can't detail today but all I can say is the basic fundamentals are guaranteed access to funds if people want to take up that option, the ability to have the house repaired and the ability to over time work their way out of the situation, and it will depend on their income what their repayment schedule looks like.
GUYON Right, so their eligibility will be based on age and income, is it true that you're looking at the elder people, people over 65, is it targeted at that?
JOHN What I can tell you, in British Columbia, where they had a very similar problem that we had, they allowed older Canadians in that case to essentially capitalise their costs if you like and take it off their estate when they passed away, so there was no repayment costs.
GUYON And just finally on this before I move on to coalition matters, how much public money are you going to throw at this over the next decade?
JOHN Well it's hundreds and hundreds of millions of dollars, and it has to be, this is potentially as identified by Price Waterhouse Coopers, an eleven and a half billion dollar problem which comes down to about a six and a half billion dollar liability if you're looking at a ten year period.
GUYON So you're looking at a billion over the next decade?
JOHN Could be that kind of number, but I think the important point here is we've got around about 44,000 homes with New Zealanders who are in a terrible position, they can't borrow the money, they can't sell their house, their health is deteriorating, their single most important asset is evaporating in front of them, and I think all New Zealanders would say that doesn't actually seem fair given they relied on a lot of other factors, not least of them being the Councils, and they would argue the government.
GUYON The remaining time we've got this morning I'd like to talk about your coalition relationships, both in terms of the policy progress they've made, and the state of the relationships. One of the big outstanding things that ACT wanted was a bill which you'd said you would support, which would be essentially a cap on government spending, a cap on the growth of core Crown expenses - will that happen?
JOHN Well that's largely in place if you count a one billion dollar increase, we're increasing our expenditure by 1.1 billion.
GUYON But sorry Prime Minister, a law, it's a very big different thing, will that happen?
JOHN Well, that is subject to debate, but I've never been a great fan of those laws, and the reason for that&
GUYON So you won't give ACT that?
JOHN Well it's a subject of debate.
GUYON But you're not very keen on it?
JOHN Well it depends how the law works, but generally it's been proposed as a law, which is a percentage of GDP, so let's say 30% of GDP in government expenditure can't be greater than that, and the problem you have with that, is in a recession where GDP is collapsing you actually have to dramatically shrink your expenditure and that worsens a recession, as was the case in Colorado.
GUYON What sort of mandate does Rodney Hide have to talk about reducing government expenditure when he's been taking his girlfriend on these international trips, which happily coincide with weddings, we learn he quietly paid back thousands of taxpayers' dollars after taking her on a holiday to Hawaii. Does he have any mandate now to talk about other people tightening their belts?
JOHN Well I believe he does, I mean he's really making a case very strongly, and he's actually right that the quality of government expenditure is often low and that we need to do a better job there. Now you know ACT will always have a slightly different prescription to National on the best way of achieving matters.
GUYON I mean the public would be looking at that, a lot of them, and laughing at him asking us to tighten our belts after what they've seen, I mean do you not agree with that?
JOHN Well it's difficult to characterise one individual Minister when you look across the parliament and say exactly the same time that Rodney Hide took that perk, so did a whole lot of people right across the parliament, and it probably speaks a bit more about the whole structure of the benefit scheme that operates in parliament, and it speaks about the transparency regime that we now live in, and what I've tried to say to my MPs and actually other MPs as well, is look we live in a different world now, it's open, it's transparent, you are going to have to justify to the New Zealand public what you do, and that you might need to change your behaviour on the back of it.
GUYON He says you're the do nothing Prime Minister.
JOHN Oh look, I think you've gotta accept that actually in the context of being light hearted banter not a serious comment. I don't think Rodney Hide would seriously believe that.
GUYON We heard Fran O'Sullivan, a very respected journalist, just tell us a few minutes ago that he's been saying those kinds of things at other meetings and saying that he's the man who can slip things through Cabinet cos you guys aren't watching. I guess the point I'm getting to is, is your nice guy relaxed sort of manner, does it reach a point where you actually have to say this isn't good enough, you can't do those sorts of things without consequences?
JOHN Well unfortunately the vast bulk of people who come into parliament have A type personalities, so they are going to promote themselves, and it's not unique to Rodney Hide, it's right across probably the whole 120 MPs. So everybody thinks that they make the biggest contribution in parliament, that's just the way it is. I'd rather stick to the record of the government and its long and expansive, whether it's the 180,000 homes we're going to insulate, whether it's the bonding of doctors and nurses and teachers, the billion dollars of tax cuts, I could run through a big shopping list for you - the war on P.
GUYON So you don't mind that one of your ministers is basically slagging you off behind the scenes?
JOHN Well of course that's an unhelpful comment to make, but it's also factually not correct and it's in the context of probably some light hearted banter with his supporters, that's just the way politics sometimes is, I don't get too being out of shape with it, I have a good relationship with Rodney, I support him as a Minister.
GUYON Can I talk briefly about Hone Harawira and his comments, did you think they were racist?
JOHN I thought they were offensive.
GUYON A tinge of racism&?
JOHN I was gonna say look they have a tinge of that, because they actually argue things the other way round, and racism goes both ways doesn't it?
GUYON Yeah well should the Race Relations Commissioner be doing something about it, he says he can't do anything.
JOHN Well he's looked at it, he's the expert in that area - I think the bigger issue here - well the bigger issue is - that's an issue for the Maori Party how they deal with it, but you've gotta say the Maori Party is taking this issue seriously, and look again small parties, and it's actually true of all parties to be honest, they have personalities which are sometimes larger than life, Hone is a bit of a shock jock MP, he's that kind of guy, he says things which are sometimes completely outrageous. People generally speaking don't mind that, except when they sort of cross the line, and this one, it got over the line.
GUYON Just last question. Seabed and Foreshore, you had an August deadline, November deadline, what's happened to it?
JOHN Well progress is being made, I think it's likely that the law will be repealed but I think before we repeal it let's replace it with something that there's agreement on.
GUYON What about just going back to the courts is that an option?
JOHN Could do, but we've been in discussion with the Iwi leadership and others about that, and I think their general view is that could be very expensive and not necessarily deliver the best outcomes, and my hope is that we can put up a piece of law that all political parties can potentially support, and this is a weeping sore, if we don't deal with it it's not gonna go away, just in the same way that Treaty settlements haven't gone away just because of the passage of time, and I actually think we are navigating a way through that which will be acceptable to all New Zealanders, ensure that their bottom line rights of access are maintained.
GUYON Just one final point on that. Let's say they get customary right, some hapu and iwi get customary right, would you allow, or do you think it's acceptable that they would then use that in a commercial sense, because a lot of iwi want to do that?
JOHN Yeah, well it'll give them the right probably to have a discussion about what happens there, that is possible I guess, but ultimately let's have a look at the final law, but they're such small parts of the country that are likely to be there, I think you'd probably argue they have that right today and certainly the existing law as it stands gives iwi that right. So I think what we're really talking about is a situation where I think we can navigate our way through something, we can deal with an issue which otherwise future governments will be dealing with, and in a way that's acceptable to the wider public.
GUYON Thanks very much Prime Minister for coming in this morning.