PM Reveals Plan To Borrow Billions On TVNZ's Q
Sunday 22 March 2009: Prime Minister John Key has unveiled a new economic initiative to borrow $40 billion to help NZ
through the recession and believes we will come out of it “reasonably aggressively” in a year’s time during an
interview with Political Editor, Guyon Espiner this morning on TVNZ’s new political show Q+A.
Points of interest:
- PM said Govt would borrow $40 Billion over next 3 years
- PM refused to commit to 2010 & 2011 tax cuts
- PM believes NZ will be coming out of recession “reasonably aggressively” in year’s time after 2-3 quarters of
negative growth
- Treasury estimates tax cuts will mean a 5% reduction in Government revenue
The interview has been transcribed below and the full length 14:56” video interview can be seen on tvnz.co.nz at:
http://tvnz.co.nz/politics-news/question-over-long-term-economic-plans-2575728
JOHN KEY interviewed by GUYON ESPINER
(Please attribute TV ONE political programme Q+A (9am-10am Sundays)
GUYON Welcome Prime Minister, thank you very much for coming in for this first show this morning. We've had the
Job Summit you're working through some of those plans, are National's big economic ideas all out there now or are we
going to see big new economic initiatives say by the time of the May budget?
JOHN Well we're working our way through those, we've always argued there'd be a rolling mall of initiatives and the
reason for that is there's obviously the need for the government to have a series of things that it will be undertaking,
initiatives that we think can make a difference to take the rough edges off the recession.
GUYON So there will be new material?
JOHN Well I think you'll see one or two things coming out of the budget but even potentially post the budget, I mean
part of the reason why we're spreading out the things we're doing is because one of the things to get through a
recession is about confidence and that’s a constant arm wrestle between people who are fearful of what they're seeing
overseas or within their own business domestically and a sense of where we're going, so I think it's important to kept
that confidence going.
GUYON And what are those ideas?
JOHN Well we're working on them one of them we've already flagged clearly as a home insulation package which could be
reasonably significant, not just at the public housing end where we've already indicated through the plans we've
announced that we will be doing a major re... of insulation and upgrading of state housing of which there's some 60 odd
thousand in number. So you know there are other initiatives there.
GUYON Okay let's look at one of the plans that is out there already that’s the nine day fortnight. It launches
next week.
JOHN It does.
GUYON How many companies have signed up for it?
JOHN Well don’t know, at this stage we know from the anecdotal feedback we've had behind the scenes not directly from
companies that there are one or two at the moment looking very closely or potentially are over the line if they want to
pull the trigger if you like.
GUYON Sorry, there are only one or two companies at this stage who have signed up for this?
JOHN Well that’s the anecdotal feedback I've had at this point but the important point here is we always argued it would
be a last resort, now it's running for about an 18 month period, a company can use the nine day fortnight for six months
of that, so I wouldn’t be surprised if you see companies who at the moment say look I'd like to hold on for as long as I
can before I go on to the nine day fortnight, and the reason for that of course is they can't use it for 18 months
they're not sure how long the recession will last.
GUYON It's quite scaled back though isn't it Prime Minister compared to what your initial estimates were, I
remember you telling at the Job Summit that you were looking at this being picked up by perhaps a 100,000 people, now
the maximum you're looking at now is 20,000, it's quite a modest scheme isn't it?
JOHN Well I mean firstly the 25,000 people number is an estimate from the Ministry of Social Development, no one really
knows and we acknowledge that it's any kind of number is possible, could be much smaller than that or much larger than
that, what we do know is it won't work in every workplace because some places it's just not practical to close down for
the tenth day. The thing I would say about it is what's changed is the decoupling of training from the fact that we are
subsidising workers for half the hours based off the minimum wage that their hours are reduced so I don’t think it's
different other than the fact that there's a decoupled training aspect
GUYON Let's look at another area of employment law, you’ve made some changes with the 90 day trial period for new
workers, what about the Holidays Act, are you going to allow workers to trade away their fourth week's holiday/
JOHN That’s our plan to do so, we campaigned on that, we can't see any particular reason why if an employee wants to do
that as long as they’ve got permission from the employer, I mean it has to be a mutually agreed perspective because you
might for instance be on the factory floor, you might be the only worker that says look I want to come into work for the
fourth week, that’s not practical, but as long as there's agreement between employers and employees I can't see any
reason why an employee shouldn’t have the entitlement to take the cash as opposed to the fourth week off.
GUYON Well is three weeks holiday enough?
JOHN It depends I mean some people don’t want to take three weeks some people want to take six weeks, it just depends on
the individual
GUYON Are you worried though that employers will actually put pressure on a worker to actually sign up for that
and actually have three weeks holiday?
JOHN No I'm not there wouldn’t be enormous benefit for an employer to really do that they're still paying the cost of
that fourth week, you know I think broadly in Industrial Relations Law we're looking to take a fairly moderate
position, yes we introduced the 90 day period for those smaller companies, I think that’s a very positive step myself,
we will look at relevant daily pay in the way that that is calculated, we campaigned on that in relation to the Holidays
Act but we're not looking to make a move back to the Employment Contracts Act and I signalled that to the Council of
Trade Unions this week.
GUYON What about this talk of possibly bailing out private companies like Fisher & Paykel was mentioned, has that all come to nothing?
JOHN Well we always argued that that was a last resort and that’s exactly where it's at, in other words we want
companies to find a commercial solution to their problem I mean there is a well documented moral hazard if we get in
there and start bailing people out.
GUYON Did you have Treasury doing that work, has it come to anything have you got criteria, has there actually
been anything more than just talk?
JOHN Oh Treasury' done a little bit of work on it and they’ve given some advice to the Minister of Finance that I've
also read as you would expect it to be, it's pretty conservative advice, because as I said there is a moral hazard
there, if you start with one company where do you stop?
GUYON Did they advise against it?
JOHN The general theme of their advice would be they would advise against it, but that’s not to say that the government
doesn’t as we've always said continue to reserve the right to do so and that is because you’ve gotta look at where a
company fits in the overall structure, now we laid out some criteria fairly loosely but they were – it had to be
significant had to make a real difference to the economy, had to have a systemic sort of impact if it fell over. You
know I just simply would argue with you these are very unusual times, this is arguably the strongest recession since the
1930s and we've roughly had 20 recessions from that time of a varying nature.
GUYON So you're not ruling out helping those private sector companies?
JOHN No but as we saw at the Job Summit I mean one potential initiative could be a co-investment fund, there's some
discussion continuing on that that might be a better way to go, it would be very much a last resort if it hadn’t.
GUYON Well let's talk about public sector jobs, because you don’t seem to have nearly the same urgency about
actually saving those, we've had the Environment Ministry, we've had TVNZ, we've had the Tertiary Education Commission
laying off people, aren’t you actually destroying jobs in the public sector?
JOHN I don’t think so and the reason that we've made some changes are not so much, I mean if you look at it really we're
preserving the vast bulk of public sector jobs and actually we'll be borrowing the better part of 40 billion dollars
over the next three years to preserve those jobs, but what we are doing is rightfully saying there are some areas where
the work isn't in line with the priorities of the current government or the initiatives they're working on or
alternatively we wanted to restructure to have more services on the front line.
GUYON Well where is that happening though Prime Minister because all I'm seeing is people actually lose their
jobs, where are these people being redeployed on to the front line, it's not happening is it?
JOHN Well 600 Police is a good example of that, and if you go and have a look at something like the Tertiary Education
Commission, I'm not arguing they don’t have an important role but what I am arguing is that it's important that
government is a stimulus for growing productivity, and the underlying important issue in our economy is productivity
growth, and if the public sector is holding the private sector back from growing then it's counterproductive to a
stronger economy.
GUYON You campaigned on capping the public service but hasn’t that turned into a cut, Chief Executives of
government departments were told to find up to 10% of savings, now there are up to 46,000 people in the public service
depending on how you count them, that could mean potentially the loss of four and a half thousand jobs.
JOHN Well firstly it wasn’t as prescriptive as that, secondly there won't be a reduction of four and a half thousand
jobs, what we have argued or asked Ministers with their Chief Executive on a line by line basis to go through and look
at and make recommendations for areas where they think there is low quality spending or the spending isn't in line with
the priorities of the government, now that’s being driven by the very people who understand those businesses, it's the
Chief Executive. In some areas I have a variety of departments that roll up to me, tourism, SIS, GCSB and the likes,
ministerial services, in some areas it's been possible to find savings, in others there's not.
GUYON Can you tell me how many jobs are gonna be lost in the public sector?
JOHN Look don’t know.
GUYON Well shouldn’t you know, I mean you’ve said that jobs are your number one priority, you're potentially
talking about bailing out private companies and you can't tell us how many jobs are going to be lost in the public
sector.
JOHN Yeah, don’t know because we haven't worked fully through all of the line by line initiatives, what I can say to you
is that our preferred option is always natural attrition anyway, I mean it's a cheaper option for the Crown it's less
disruptive. We're not on some crusade to cut a certain number of jobs but what we are doing is rightfully saying is
that initiative in line with the initiative and priorities ...
GUYON And looking for value for money I understand that. What about the tax cuts they cut in – the personal tax
cuts kick in next week and what about the 2010 and 2011 tax cuts can you guarantee that they will go ahead?
JOHN Well it's my preference that they go ahead, I think if you look at the National Party I doubt you'd find a lot of
people that would say that we don’t believe in tax cuts and haven't argued for them for a long period of time.
GUYON Can we afford them though?
JOHN Well what I would say and this is I guess the qualification we've put on it is that we live in very dynamic times
at the moment, you’ve seen in the last six months alone the recession taking a much more severe downward track than any
of us have imagined. Now as Prime Minister I have to make sure that I balance not only the affordability of tax cuts
but also the preservation of our economy and our future rating from rating agencies, is in the number of initiatives, so
my preference is that they go ahead but I can't rule out the fact that things become so dynamic or there's at least such
enormous change to the outlook that we have to look at them.
GUYON How likely is it that they will be cancelled?
JOHN No I think it's reasonably likely they’ll go ahead but look we need to just keep some – you know be honest I think
with the public and say look we need to you know keep an eye on those and just make sure we can afford them.
GUYON Are you looking at any revenue generating schemes, would you consider raising the level of the Goods and
Services Tax for example?
JOHN No, we'd rule out that. As a general rule there are adjustments I mean the petrol tax last week, nationwide petrol
tax raised revenue being poured back into roading or public transport initiatives, in the margin yes there's minor
changes but we're not looking at wholesale changes. Then what we are trying to do is come through this recession with
as strong a balance sheet as we still can, as I said we'll be borrowing 40 billion dollars at least over the next three
years, debt to GDP will be blowing out from about 18, 19% to 33% by 2013.
GUYON Does that frighten you?
JOHN Well we can't have that on an ongoing basis, let's be under no illusion here we can't have an upward track of debt
going on forever because we saddle future generations, so we are focused...
GUYON But you're still prepared to sacrifice that revenue by cutting taxes.
JOHN Well if you look at tax cuts I mean they do make an adjustment to your revenue, Treasury's done some work on that
and it's about a 5% reduction in your revenue. Compared to actually controlling your expenditure and being more careful
about your expenditure that is the single most important thing the government can do.
GUYON What about the Super Fund, every year we put about two billion dollars into that, are you going to suspend
those contributions to the Super Fund?
JOHN That’s an option and I've asked Bill English to look at that as a budget item, and the way that works is there is
the capacity within the law to either pay in a lower amount or temporarily suspend payments. Now just to put that in
perspective the Super Fund between the middle of 2007 and at the end of January 2009 we paid in 3.4 billion dollars, 50
million dollars a week we borrowed to put in that, we've lost all of that and a further 1.3 billion.
GUYON You haven't lost it, these are market to market calculations, you haven't actually lost that money until
they sell up.
JOHN Well I'm delighted your optimism that'll come back but at the moment we've lost 4.7 billion dollars.
GUYON So this sounds like an argument that you are going to reduce those contributions then?
JOHN No, all I'd say to you is this – the big issue that we've got is we're borrowing a lot of money for a variety of
reasons, primarily actually to preserve the entitlements that New Zealanders rely on, I mean this is a very unusual
recession, we're not a National government going in there arguing we're getting rid of Working for Families or cutting –
putting interest back on student loans or we're cutting Superannuation entitlements, we are arguing absolutely up front
and very strongly we'll be preserving those entitlements, but my point is that comes at a cost and we can't have debt
blowing out forever otherwise if we do you know the risk is we're downgraded.
GUYON You talked about being up front, in the election campaign you campaigned on putting more money from the
Super Fund into New Zealand businesses, but you may end up with actually less money for them to invest in New Zealand
businesses.
JOHN Well if that happened I would envisage that would be on a temporary basis but I actually agree with the policy that
says instead of having 23% invested in New Zealand Super Fund it's 40%.
GUYON Is that gonna happen?
JOHN Well it's certainly gonna happen as an initiative it won't be – it'll be at the initiative of the guardians, we
won't dictate that boy this year you’ve got to 27 it should be 29, but we will endeavour to move more into New Zealand –
as I say the objective is 40%.
GUYON Can I just ask you to look ahead now and to tell us where you think New Zealand is going to be on the
economy in a year's time?
JOHN I think in a year's time we will have had another – well we would have had a number of years, a number of months, a
number of quarters of recession.
GUYON We're still gonna be in recession in a year's time?
JOHN No I think in year's time we'll be coming out of it, so we'll be looking back on the fact that 2009, probably at
least two and maybe three of those quarters would have been negative contraction for the economy, but I think by the end
of 2009 early 2010 this time next year we'll be starting to come out of that and I think actually starting to come out
of it reasonably aggressively, I'm more optimistic about 2011 than 2010 but nevertheless I think 2010 will be positive.
GUYON Good place to leave it, hey thank you very much for coming in this morning, very much appreciated.
ends