Agenda Interviews: Steve Maharey And John Key

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SIMON: Now one of the main architects of this week's budget was Minister of Social Development Steve Maharey. Mr Maharey has said that the Working for Families package shifts the focus of New Zealand's socialist system from passive welfare entitlements to active support to move into employment. But is this really the way forward for both New Zealand and Labour and with 1.2 million households effectively left out in the cold has Labour done enough to secure middle New Zealand's vote. Steve Maharey joins me now from Wellington. Welcome to the programme Mr Maharey.

The Working for Families package has been the budget's headline act, why then with money in the pot must families wait a year or more for the benefits?

STEVE: Two reasons, the first obviously is the one that Michael Cullen has made clear that he wants to be able to afford so it's spread over a series of years, most of it will come over the next 18 months or so and the second of course is that we need to design the systems and get it into people's pockets.

SIMON: As you understand of course that looks like vote buying.

STEVE: Well it really comes down to the fact that we have to spread it out so we can afford it, we have to design it and of course remember that all of this was done really around the time of the last budget, most of this work was prepared. At that time Michael Cullen felt that he couldn't afford it over the period of the years in front of him he wasn’t sure at that time about the world economy so we waited for this year so this has been in the pipeline for a good amount of time, this is not a reaction to polls or an effort to try and do things that people seem to be casting on us at the present time, it's really about trying to make sure that we deliver to that group.

SIMON: You’re talking about affordability, you’re talking about financial affordability, critics of course say you’re creating a nation of dependency do we really need more welfare can we afford it?

STEVE: Well it's completely untrue, in fact one of the things that New Zealand hasn’t done over the last decade or so has provide the same support for families as say Australia or most of the countries we'd compare ourselves with, all we've really done with this budget is pull ourselves back into line with the kind of support you'd expect as an Australian or a Canadian from your government and of course much of this gets delivered to you through the tax system, it's not a benefit it comes through say family support which is an IRD delivered a block of money, it doesn’t turn you into a beneficiary it just puts you in a position to get some money back from IRD.

SIMON: Well why then no tax cuts when you've got the money?

STEVE: The obvious reason of course is if you spread that across the whole population which is what a universal tax cut would be there's no way you could deliver say to a household of $30,000, a $150, they only pay about $100 tax a week so you'll have to find some other way of getting the money into the household, a tax cut wouldn’t do it, so what we've done is say to ourselves we want to put significant money into these families, the only way you can do it is targeting and that’s why we've chosen this route.

SIMON: What circumstances then would you actually favour tax relief in I mean you have a huge budget surplus when could we possibly see tax relief under a Labour government?

STEVE: Well I know it's a broken record but Michael Cullen if he was here would be saying, it's not as big as it looks, he's gotta pay for superannuation and that’s a choice that all parties now have to make for example, do they want to put that aside, if they don’t how do they guarantee that that baby bulge group who are going to retire can be paid for without massive increases in taxes and so on, so he is prudently putting money aside for that, he's paying for things like student loans that people can borrow, so by the time he's taken those things out he's left with the amount of money he spent in this budget and therefore you’re down to exactly what I said before, the choice is do you target that money so people maximise what they get, or do you spread it thinly so people who are better off get more and people who are in this target group would get very little.

SIMON: We know you've been pushing prudency as a core message but one columnist has suggested this is a revenge budget a payback for Ruth Richardson's mother of all budgets in 91, what do you say to that?

STEVE: I'd almost forgotten about that budget, it certainly does things to right some of the wrongs then, if you think back to 1991, by 1992 we had a food bank industry and that was off the back of massive cuts, 30% type cuts in people's benefits, so in that sense we have as a government had to try and put that right, in fact the National government had to do it as well because during the 90s the cuts were so severe people simply couldn't live on the money, so there's been a gradual shift in paying more into these families, we've done a lot more and now in this budget we've tried to not only pay more but shift the system so that you get decisive amounts of money by moving into work, and that’s what at the head of this piece you were saying moving from passive to active, this is very much about trying to say income transfers are one thing moving people and giving them a reward for moving into work is another and that’s the active part of it.

SIMON: Great for individuals what about business though, where will the stimuli for growth come from when there's so little for business in the budget?

STEVE: Well there was an interesting contribution yesterday from one of the New Zealand First people in the debate saying of course this is good for business more money in people's pockets means they go to the dairy owner who was on you programme and buy more things so you've got more money moving around the domestic economy once again and business of course have been telling us they want more people to go to work because they're desperate with a 4.3% unemployment rate to find good employees. Well if you take women for example trying to look after kids they find it very difficult to move into the labour market if they don’t have good child care assistance and if work doesn’t pay, because they just can't afford transport and the things that go with being in the workplace. Well employers can now look to good people looking to return to the workforce because it does pay, childcare's looked after it, it's gotta be very good for business.

SIMON: Labour's stated aim has been for some time to get New Zealand back into the top half of the OECD how does this budget actually contribute to that?

STEVE: Well as I say it's a budget about being active and I think if we can get more people into the workforce with – something I'll come back to in a minute – but of course if you’re growing your workforce you’re producing more, you have a chance to pay more to people who can then go out and spend, you’re really stimulating your economy, so the size of our labour market is going to be a stimulant in terms of getting us growing and moving into a better position in the OECD, we're already fourth for example in unemployment, growth is going well, more people out there doing more work will help all of that. The one caveat of course is you’re always balancing off other things that you’re doing in your society like raising children, you want to make sure that people can do that, that’s clearly an investment in them as kids and a good society overall, so there's always a balance there but we for example don’t have a high participation rate by women in the labour market and if we have more of them in there we're likely to produce more wealth.

SIMON: Let's look at Labour more generally in its direction, is it still socialist and what does that concept mean to the government now?

STEVE: I think we'd call ourselves social democratic, you'd have to really go back to pre the 1920s I'm sorry for any Labour people who are watching to see a party that really would qualify in the textbook form of the word as socialist, but we've certainly been a party with people who are socialists in it since then, and we've certainly got a lot of people like me who are social democrats.

SIMON: What do you think socialism means in the current era?

STEVE: I think what it means is being active on behalf of people to make sure that they can achieve whatever potential they have and I think the difference has been that over the last ten 20 years we've seen people back out of that as governments, they’ve said you get on with your life we might run tax cuts and so on but the best thing we can do for you is nothing. Social democrats all over the world from Bill Clinton to Tony Blair to right throughout Europe to the Spanish to us, we're saying it doesn’t work we've tried it, you end up with low growth, social problems, and people feeling like they're isolated no one cares about them, so we don’t want to go back to what you might call the middle of last century where the government dominated everything, but we do want to be in there playing our part I think that’s the modern way to be a social democrat if you like you’re in there actively doing things for people in a way which means that you’re playing your part alongside the market and alongside the community, that’s what I think people like me are advocating.

SIMON: So you’re saying Labour's natural evolution is effectively the Clinton and Blair favoured third way approach?

STEVE: Oh I think probably all governments of that kind have moved beyond that now but yes they want to be – a third way means anything, it means government's being active, getting out there, trying to make that potential that you've got as a person be realised and that’s really I suppose what Clinton and Blair have talked about through their careers and what we've done.

SIMON: Isn't the upshot of that that effectively what we're talking about now is the centre of the political spectrum is where it's all at, is that the political battleground of the future?

STEVE: I think it is, in many ways though the ground has shifted decisively from the 90s, I think people who just talk about no government, tax cuts, really don’t hit the mark at all at the moment. Yes people are cautious about how much government does but there's no enthusiasm out there for a return to those hard line right policies, so yes the battle ground now is who can do best as an active government, that people like what they're doing and those are the people who are going to be the government .

SIMON: Mr Maharey thank you very much for your time this morning. After the break the National Party talking economics rather than race relations.

PART 1

SIMON: ………..he's said to be the richest man in parliament and since he became an MP in 2002 he's been picked out by many commentators as a high flyer in the National Party, he's their economic spokesman and he's with me in our Auckland studio. Good morning Mr Key.

You were brought up in a state house by your mother, isn't this exactly the sort of budget she would have applauded?

JOHN KEY: Ah well in certain aspects yes that’s right, I mean there's no doubt that there's a need for a welfare safety net in our community and National's supported that and I'm a very strong supporter of that. The real question is, is it a safety net to help those or is it something that extends right up through middle New Zealand and ingrains dependency in our society?

SIMON: Is this the budge that clearly defines the difference between National and Labour as Rod Donald suggested?

JOHN KEY: Well there may be differences in terms of the way that we would do things, I mean.

SIMON: Well how would you define the difference?

JOHN KEY: Well I would define the difference in a number of forms, let's take the corporate example as an example, the government are on the corporate side, despite the fact that corporate New Zealand and major leading tax partners are telling the country and telling the government that they want a tax cut in that area the government has decided they're going to deliver anything that they're giving to them and it's not very much in the form of corporate welfare, to picking winners and giving money back to them rather than leaving it in their pockets.

SIMON: National gets in power would you repeal the new initiatives?

JOHN KEY: Well what we said right from the start is one of our major focuses has been low to middle income families, so clearly we're going to be looking at those groups and certain parts of the package we would have delivered that way. I mean let's take a simple example for low income earners, we've heard a lot from the government that you can't have tax cuts at very low levels, well we agree with that, we introduced tax credits ourselves in 1996, in fact Michael Cullen argued at the time that they weren't a good way of delivering…

SIMON: So you'd retain these extended tax credits though?

JOHN KEY: Certain parts in low income New Zealanders absolutely that’s the way that we would be looking to deliver relief for low income New Zealanders because you can't cut their tax fast enough because they don’t pay enough tax but when we move into middle income New Zealand the first point is we'd be looking at whether this is the most efficient way. I mean I would argue with you a person earning $80,000 who at some point in the never never on this budget is actually going to get some relief. I think it would be far better to actually leave that money in their pocket and secondly we'd be looking to extend the number of people who get relief, who’ve had New Zealand households on average since the government's come in office from changes in taxation, are paying $2,600 more. I can't believe that a wider number of New Zealanders don’t deserve relief from this budget, it's a huge budget.

SIMON: Well given the surplus and forgetting the oberaque and all that sort of stuff how far would you have gone with tax cuts?

JOHN KEY: Well we certainly would be looking to engage some relief for more people than this budget is doing. I mean one in five New Zealand households are getting relief from this budget, four out of five New Zealand households pretty much get nothing.

SIMON: And how would National have given them something then?

JOHN KEY: Well it depends on the specific circumstances but let's take you know the young student nurse who's just come out of training, or the young policeman, in this budget they get absolutely nothing, despite the fact that we're losing those kinds of people in droves to Australia.

SIMON: And what would you give them to make them stay here then?

JOHN KEY: Well I think you can afford to give them some tax relief, I mean this is the largest budget surplus that any government in New Zealand history has had, it's over six billion dollars, there's enormous opportunity to deliver relief.

SIMON: So would that tax relief – it wouldn’t just be for high income earners you'd have it at all levels.

JOHN KEY: Oh absolutely, we've argued.

SIMON: And retain the credits?

JOHN KEY: We've argued there's been a sequence and the sequence would be low to middle income families, we would look at how that would play out and as I said earlier, certain parts would absolutely be delivered through tax credits.

SIMON: It sounds to me like you’re offering everything, you’re offering tax credits and you’re offering tax cuts, I mean can you afford those things, aren’t they mutually exclusive?

JOHN KEY: No what we're arguing is that there are horses for courses, I mean I think for low income earners in New Zealand you have to deliver via tax credits, but for middle income New Zealanders what we don’t want to do is ingrain dependency. I mean we think that the New Zealand psyche is such that there's a great deal of pride and aspiration in New Zealand, they don’t want to have their hand out to the government, let's leave that money with them they earned it, it's not the Minister of Finance's money, it's not a mechanism for buying votes, it's their money and they should be entitled to keep it.

SIMON: Well the Minister of Finance of course as we alluded to earlier has been at pains to stress that there isn't as much money there as everyone would like to think. How big is that surplus really and what would you have done with it?

JOHN KEY: Well there's no doubt the surplus is around about six billion dollars that’s the projections coming, now what the government is doing is it's choosing to fund almost in totality its capital budget going forward out of cash on a pay as you go basis.

SIMON: That’s how you justify saying there's only one billion dollars available?

JOHN KEY: That’s right, you see he looks at the available cash and he says look there's very little cash available, in fact he's got a small borrowing programme going forward, but the real issue is not to look at the absolute amount of cash that’s there, I mean for instance if you spend money on roading as an example which would be a capital item that’s gonna benefit New Zealanders for potentially 50 or 100 years, why does that have to be paid for in totality out of cash, and secondly if you look at the debt profile of New Zealand, I mean gross debt in New Zealand is now, it's been lowered in the budget, it's 25% of GDP, it's a very small number and predicted on a net basis to go to zero in the foreseeable future, there's plenty of capacity to allocate adequately.

SIMON: So you'd borrow more?

JOHN KEY: Well it's a matter of making the right decisions, if there is the right investment and I think in certain areas let's say roading is a clear example.

SIMON: So how would you fund those sort of things, I mean huge capital expenditure required in infrastructure, how would you fund it, privatisation or are you going to go into the debt market?

JOHN KEY: Well I think there's two options, the first is you could borrow a small amount and I think as long as the economic payback for that stacks up that’s a very justified thing to do, because don’t forget, if you look at the Auckland economy as an example conservatively Auckland economy's being robbed of a billion dollars a year because you have got roads being clogged up.

SIMON: There's a lot of disputes over that figure but infrastructurally we have problems.

JOHN KEY: Well you may have the numbers four billion, so let's take it as a billion dollars.

SIMON: Where are you gonna get the funding from to address this?

JOHN KEY: Well you can afford to borrow a small amount, I mean that’s not a significance issue at all, New Zealand has no issues in terms of its balance sheet funding capability at all.

SIMON: Would you look to privatise say utilities?

JOHN KEY: Well what we would look to do in terms of introducing the private sector is through public private partnerships where they may have – and a simple example of that is it maybe a toll road in certain instances, it may be a what's called a shadow toll or a way of getting the government in there and that isn't radical right wing politics I mean this is something that’s been introduced extensively for tens of billions of pounds in the UK by the Labour government and in every Australian state.

SIMON: And a very contentious issue for funding though. Would you privatise though, would you look to sell the utilities, the electricity companies?

JOHN KEY: There's absolutely no pressure or need to sell assets in New Zealand.

SIMON: So you wouldn’t?

JOHN KEY: Well you don’t need to, it's not a high agenda item, I mean we would look at assets, I mean that makes sense to look at things but it's a very low order issue, there's no need at all, I mean this is a budget that’s got so much money they don’t know what to do with it, it's not a budget where you’re going to have a look at what you might need to sell, this is not 1987 or 1990 when the debt profile was huge and New Zealand was forced to sell assets, we're in a completely different issue and secondly many of those SOEs produce a great deal of cash, now if you were gonna sell them you'd have to be absolutely convinced that that’s a better deal than owning them, and as I say it's such a low order issue it's just not something we need to focus on at this point.

SIMON: Let's look at welfare then is National still pushing work for the dole and time limits on dole entitlement?

JOHN KEY: Oh absolutely, I mean let's look at working for families, you know the welfare package that’s been introduced by the government, I mean.

SIMON: Oh not, we've had plenty of coverage of that, what would you do, I mean what is National gonna do, is it still – are we going to have work for the dole, are there gonna be time limits.

JOHN KEY: Okay well firstly yes let's look at that and say that if you look at the position of what the government did when it came into office was it effectively removed all of obligations on beneficiaries in New Zealand, and there's no surprise that beneficiary numbers in certain areas have either been reclassified to be higher or the numbers have gone up, in fact one of the very alarming things I think about the package that the government's introduced is that Treasury predictions show that the number of beneficiaries will actually rise, so a National approach would absolutely expect some obligation on beneficiaries. I mean we think there's absolutely wrong with community work for the dole schemes, we think that the vast majority of people who are genuinely on welfare would much rather have a job even if it's a community based job so that they can have the dignity and the pride of earning of their own money, they don’t generally want to have their hand out, I mean we believe they want that, and secondly let me make this point, we are also committed to a pro growth agenda, the government is clearly not, we've seen that from the budget, we are, and we think in the end a genuine welfare beneficiary, what do they really want, do they really want a few more dollars so that they can have a slightly better existence on the breadline, or do they actually want a real job so that they can commit to being part of the economy so that they can provide for their families and they can enjoy a much higher standard of living. I'd strongly suggest to you that’s what they really want.

SIMON: Let's look at National generally, where do you see it on the political spectrum now, especially after the Orewa speech?

JOHN KEY: Well we've obviously had a strong resurgence in public support and we're very appreciative of that, but we take absolutely nothing for granted, we're in election mode, I mean this has got to be probably the most cynical budget you've ever seen in your life, so much cash the Minister doesn’t know what to do with it, but miraculously you don’t get any of it until after the budget. I mean if I was a middle income New Zealander or a low income New Zealander who was gonna benefit from this budget the one in five who's gonna benefit, I'd be asking the question do I deserve to be used as a political pawn and not get the money until the never never so that I can be held out to compare with National.

SIMON: I've heard this speech already I think. Very very quickly what about your own aspirations within politics, you want to be Prime Minister?

JOHN KEY: My unquestionable focus at the moment is to want to be Minister of Finance, I think Don Brash would make a wonderful Prime Minister of New Zealand, he committed to lifting the living standards of all New Zealand, it would be a great pleasure to be his Minister of Finance.

SIMON: Putting all loyalties to one side, down the track would you like to be Prime Minister? Do you think you could serve the country best as Prime Minister?

JOHN KEY: I don’t focus on it, I really don’t.

SIMON: You’re entitled to have dreams and goals though.

JOHN KEY: And look everyone here I'm a very ambitious person as you said I grew up in a state house and I do have dreams and goals but I just don’t spend my time focusing on it, my whole thought process is look do the job the best I possibly can and we'll let the future play out in its own part.

SIMON: John Key , thank you very much for your time this morning.

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