Sunday19th July 2009: Q+A’s Guyon Espiner interviews Prime Minister, John Key.

Points of interest:
- Government wants folic acid in bread deferred until May 2012; Cabinet to release consultation document tomorrow
- PM urges bakers to follow through on commitment to introduce folic acid bread for pregnant women
- Concedes it was “ludicrous” to introduce folic acid in September only to review it in October
- Government has not decided yet on sending SAS to Afghanistan, but PM says, “we're a first world country that has to play its part in trying to stamp that terrorism out”
- “I've never said I'm philosophically opposed to the sale of state assets in some form, and I've never said that that is off the agenda forever…”
- A capital gains tax “hasn’t worked” in US, Australia and Britain and would be “punitive”

The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can be seen on tvnz.co.nz at,
http://tvnz.co.nz/q-and-a-news

PRIME MINISTER, JOHN KEY interviewed by GUYON ESPINER

GUYON Thank you Prime Minister for coming in and joining us on the show this morning, we really appreciate that. You said as Paul mentioned there that we look to be coming out of the recession, but the reality is that the human impact of a recession, that is unemployment, that the worst is yet to come, is that right?

JOHN KEY – Prime Minister
Well that has typically always been the case, unemployment is a lagging indicator and so what you often see is – even if you're coming out of a recession – starting to generate positive economic growth, unemployment lags.

GUYON Why is that?

JOHN KEY Well there's always been a lot of reasons for that. It takes a while for firms to start reacting, firms operate under a nimbler more lean environment for a period of time, partly unemployment reflects, or their employment intentions reflect their future demand and what they perceive their future demand to be.

GUYON It must be strange for a lot of people though because the economy's starting growing again, businesses are making a little bit more money, why are they laying people off?

JOHN KEY Yeah well I mean I think personally you’ve gotta accept this has been the worst recession since 1930, this hasn’t been your sort of run of the mill recession, we tend to have one of those every ten years. The real challenge here has been coming through what has been the destruction of the international credit markets, can firms borrow money, will they actually have a future. I mean you’ve seen unprecedented levels of reduced demand for goods and services, and New Zealand's not immune from that.

GUYON I just guess I'm asking you though, do you think that businesses are actually just using this as an excuse to lay people off to clear the decks a bit, when really they could keep people on?

JOHN KEY Actually I tend to think it's a little bit the opposite, I think the employers have been working very hard to hold on to their staff. We had a job summit at the start of the year, you can have a view on that, I personally think it was a positive thing to do, but one of the most positive aspects of it was it got the unions, government and employers, all on the same page, at one place, at one time, and there was genuine commitment from employers and I think actually genuine commitment from the unions...

GUYON Okay, that’s commitment and sentiment, but where are the actual practical ideas? I take you back to August last year when you were releasing National's benefit policy, you said that your government would have an unrelenting focus on work, and you said that work has more than a monetary value, there is more than just an income to lose by not working, what damage is being done to those twelve hundred people a week who are going on to the dole and is there really nothing more that you can do about it?

JOHN KEY Well unquestionably there is damage when people lose their job, because I agree with the statement I made back in August you'll be relieved to know, I mean it's not just about income, it's about self respect, it's about the way you feel about yourself, it's the way your children view you that you're making a positive contribution the things that you do, it's being master of your own destiny...

GUYON But as an employer yourself in terms of being the Prime Minister in charge roughly of the public sector, you're laying those people off, you're taking those people's livelihoods and their mana, their dignity, away from them aren’t you?

JOHN KEY Actually I'd argue with you we're rebalancing things, yes there's been some redundancies, relatively small amount relative to the size of the core state sector, but we've been moving people from the back office into the front office, and if you look at our hiring demands in new areas, whether it's Police Officers, six hundred extra Police, in lots of did areas we've been hiring people on the front line, but I think you’ve gotta accept there's a couple of things going on here and that’s what I really alluded to in my speech this week, and that was that yes there's a recession and recessions come and go, they're like the tide, they come in and out, the severity of them changes but they come and go, but there's broader underlying structural issues in New Zealand, and that is about how we make New Zealand more productive, in other words how can we sell more to the rest of the world, be more competitive, that’s the focus of attention for the government, it's got nothing to do with the recession, and that’s what's driving our thoughts at the moment.

GUYON Well let's look at that because I mean I see a lot of talk, a lot of sentiment, but not a lot of really big ideas. We accept that you’ve been a bit constrained by the recession, but we're coming out of that now, what is your idea post recession? What are the big ideas from National to make us more wealthy and prosperous as a nation?

JOHN KEY Well firstly, if you're looking for one single silver bullet, you won't find it, and I don’t think any political leader can deliver that for you. I mean just look at Obama, he spent 1.3 trillion New Zealand dollars on a stimulus package and they’ve lost two million jobs since then. So if you want to lift productivity growth it's actually the nuts and bolts stuff right across your economy, and I would utterly refute the suggestion that we aren’t doing a lot in all of those different areas. Let's take capital investment, spending seven and a half billion dollars or more, this week we just announced the Victoria Park tunnel, it goes on and on and on, reform of the Resource Management Act will be coming through parliament very soon. Reform of the Emissions Trading Scheme, that’s happening as we speak, and there'll be again a new piece of legislation to replace the old legislation you know very soon on the books, and it goes all the way through whether it's a focus of literacy and numeracy, whether it's ultimately about making sure we've reshaped the public service so it's focused on delivering better outcomes for hopefully less for the future.

GUYON Sure, they're all worthy things, but I'll just quote you one of the company chairmen who was quoted in the New Zealand Herald's session 'Mood of the Boardroom' this week, who said that the government is too timid, it just lacks any significant ideas, and in Opposition you had some big ideas, you were talking about New Zealand being an offshore banking centre in the manner of Ireland or Luxemburg do you still believe that’s possible?

JOHN KEY Well I think those things are always possible, we're looking at lots of different things, but let's go back to the Mood of the Boardroom Survey, I mean that had overwhelming support for what the government's doing. Now of course business leaders will always want, or often want, a very very business focused attention to the economy and nothing else, but we actually live in a world where we need to balance the demands and requirements of all New Zealanders, not just the business sector, they would take a quite austere view to what the role and responsibilities of government is, I can understand that position, they might want us to do things that are quite radical on day one. I actually don’t think that’s going to deliver the right results for the country, I think we've got to work through this, it's an iterative process, it's step by step, and we need to take people through it, and we're doing that on the backdrop of very difficult economic conditions.

GUYON Isn't it true though that you are constrained essentially by political expediency? Nine out of ten of those CEOs wanted partial privatisation of state owned enterprises. It's an idea that your own Finance Minister was promoting a year or so ago, you're simply not doing it because you were frightened by the Labour Party that you'd get too much criticism for it.

JOHN KEY Well personally I don’t believe that’s the big issue that’s gonna turn the New Zealand economy around, if someone can convince me that floating 25% of Meridian is somehow going to be the salvation to the New Zealand economy.

GUYON Well don’t we want companies to invest in rather than just housing?

JOHN KEY We do, but that’s about growing companies, and that’s one of the reasons why if you go back to the speech on Wednesday it was hugely focused on saying why is 90% of New Zealand's exports coming from 5% of the companies. So yes we want investment opportunities, and I happen to agree with Mark Weldon we want more things on the Stock Exchange, more companies to invest in, but you can get completely distracted in government on very small debates, one of those debates is about partial privatisation, we campaigned that we weren’t gonna do that in this term, and I'm not about to start breaking my word.

GUYON Are you gonna do it next term?

JOHN KEY Well we haven't had that debate within Cabinet yet, so I'm not gonna prejudge that.

GUYON But longer term, you give us longer term ideals, you gave us in the speech this week that you wanted 30% tax rate, you can't put a time frame on that can you?

JOHN KEY Well I've never said I'm philosophically opposed to the sale of state assets in some form, and I've never said that that is off the agenda forever, but I live in an horizon where I need to operate in the next three years, that’s the parliamentary cycle I've got.

GUYON That’s not long though for the companies to prepare for that, for people to prepare for that, so is that on the medium term agenda, you can tell us that tax at 30% in the dollar is on the medium term agenda, partial privatisation of assets or asset sales on that medium term agenda.

JOHN KEY We won't spend any time thinking about what we're gonna campaign on next term, what I can tell you is if there's a change in position it'll be up front and we'll campaign on it, but we have to be focused on how we lift that productivity, and how we make sure that literacy and numeracy skills are increased...

GUYON Okay you’ve talked about that, I want to take you to another area that people would see as being one of the central things in terms of actually lifting the ability to invest and grow more wealthy as a country. The Reserve Bank this week said pretty much, they warned that we were gonna enter possibly the same boom and bust cycle in housing. Are you going to do anything to make housing a less attractive investment for people in terms of investment properties, and try to shift investment into the productive areas of the economy, are you going to do anything about that issue?

JOHN KEY Well firstly under Bob Buckle the government has established a Tax Working Group. Now that Tax Working Group has a wide range of participants and it's going to report back to the Minister of Finance at the latter part of the year, and it's having a look at all of the structure of the tax system, how it operates, where there are efficiencies, maybe where there are loopholes, maybe where there aren’t. I'm gonna leave that working group to come back and report to the government and not again prejudice its outcomes on day one.

GUYON Haven't you ruled out a capital gains tax?

JOHN KEY Well I've repeatedly said I'm quite happy to say today, I personally don’t like capital gains taxes. I don’t think that they work very effectively, they certainly don’t stop housing booms, I mean the United States, Australia and the UK, all have a form of capital gains tax on housing, and it hasn’t worked, they all had housing booms, and in fact even within the bureaucracy in New Zealand, the Secretary of the Treasury is very supportive of a capital gains tax, the main policy advisors in IRD are opposed to one. So there's quite a debate, but one of the reasons why housing has been such an effective form of investment for New Zealanders is the system hasn’t been working well, and the Minister of Local Government can talk about that, but the RMA has held back the lease of land, the Building Act's been highly inefficient, we haven't had the supply for what's been an increasing population. So let's go and tackle those issues first, a punitive tax won't necessarily just deal with the issue.

GUYON On tax Bill English said this week when he was visiting Australia, that he kind of expected Australia to move on tax next year, and that we might have to respond. Are your tax cut agenda programme actually back on the agenda over this term?

JOHN KEY Well again we delayed personal tax cuts reluctantly.

GUYON But will you cut them if Australia does?

JOHN KEY Not specifically because Australia does, but the point that the Finance Minister is making he's quite right. Australia's undertaking a thing called the Henry Review, so Henry – Lex Henry I think at the moment is out there reviewing tax in the Australian structure in the very same way that we are through the Bob Buckle Review. So what is going to happen is, we're ob going to go and have a look at what Australia does. Now we can't ignore the fact that our large Australian partner, the partner that we have a single economic market has been established with is undertaking tax review, otherwise we'd be too closing our eyes to the competitive threats around them.

GUYON So it sounds like if they cut taxes you'll follow?

JOHN KEY Well let's just have a look at what they do, they’ve got a different tax structure to us so we're not saying holus bolus we would sign up to what they're doing, we're simply just saying we would need to look at what happens and what comes out of that review in Australia, who knows how ambitious it will be.

GUYON Let's look at one of the big issues between Australia and New Zealand over the last couple of weeks, that is the moves to put Folic Acid in bread. You went away and said you were seeking legal advice on whether we could get out of this. Can we?

JOHN KEY Well I have sought legal advice from Crown Law, and it is quite challenging, but what I intend to do tomorrow is ask Cabinet to consider the release of a discussion document – that discussion document would be put in the public domain and consultation would take place over the next few weeks. It includes three options but the government's clearly stated preferred option is that there is a deferral to the mandatory inclusion of Folic Acid in bread, that deferral would take place until May 2012 and we could then use that time to fully assess the merits or otherwise of the debate.

GUYON So it's looking like the likely option is that you put this thing off until after the election, after 2012 and then make a decision then?

JOHN KEY Yeah the reason for May 2012 is that there was always going to be a review by the Ministerial Council between New Zealand and Australia, that review's going to take place in September 2011, and it takes about that period of time to report back, and they report twice, May and October.

GUYON So the bakers won't have to put Folic Acid in their bread in September like they were going to have to?

JOHN KEY Not from a mandatory point of view but what I would say is the bakers have talked a fair bit about choice. I accept that argument that we come as a political philosophy as a party that believes in choice, but it would be my expectation that the bakers would produce a range on a voluntary basis of breads that included Folic Acid so that women of a reproductive age could consider whether it's in their best interests to eat that bread.

GUYON Why the change? Last week on this show we had your Minister for Food Safety saying I can't get out of this, there's no way out of it, I have to go with the Australian regime, and now you seem to have come up with an alternative, what's changed?

JOHN KEY Well it's a very complex legal area, I mean some have argued that through the stroke of a pen this can simply be changed, actually that’s not correct, it's a convoluted process. The advice we had was the best route to take was one of those ministerial reviews that’s May or October. You know it does seem a bit ludicrous if you are going to be implementing a mandatory inclusion of Folic Acid only to have a review in October to then take it back out again. So we have worked harder, we've asked Crown Law to give us some advice, I think we've been quite creative in what we're doing, but I'd hasten to add you know it is a consultation process, we can only give our preferred option, and in the end we'll listen to the stakeholders.

GUYON Australia and New Zealand got a real reminder that this threat of terrorism is still with us this week, with the bombings in Jakarta. Now most people see the home of this war on terrorism as in Afghanistan where America and others are prosecuting a war. Do you believe in that war?

JOHN KEY Well look I think it's necessary, New Zealand's involvement in Afghanistan has been necessary. There's no great secret that we're undertaking a review of our commitment to Afghanistan, that review is due to be released back to the government in August of this year, so next month. At that point we're going to make a number of decisions, but it's our long term view that we would like to exit our activities in Afghanistan, but I do think it's important that New Zealand plays its role, and plays its part in trying to get on top of what is a terrorist hotspot.

GUYON Because you believe in that war?

JOHN KEY Well I believe in the fact that you know we have New Zealanders all around the world, I mean if we learnt something on Friday again it was that New Zealanders are never immune from the threat of terrorism, whether it was Mumbai or whether it's ultimately Jakarta or the bombings in London, there are New Zealanders all around the world, and we're a first world country that has to play its part in trying to stamp that terrorism out.

GUYON So are we going to fight, are we going to send our young men and women to fight in a combat role in Afghanistan again?

JOHN KEY Well one of the things that’s being considered is whether the SAS would be redeployed to Afghanistan for a period of time. Now we haven't made that decision yet, but we'll consider that in the wider context of...

GUYON You have to send them don’t you? If you believe in the war you have to put your money where your mouth is.

JOHN KEY Well they have been sent before, the previous Labour government deployed them on three different occasions, so it's one of the things the government is considering but the final decision hasn’t been made at this point.

GUYON It sounds though that you are committed to that, that you personally believe that if you believe in the war then you actually have to put the troops up at the sharp end and carry through with it?

JOHN KEY What I would like to see happen in Afghanistan from New Zealand's perspective, and ultimately I guess from the world perspective, is that we stabilise Afghanistan, and that the huge commitment of foreign forces that are in there can ultimately be withdrawn from Afghanistan. Now that can only happen if the position's stabilised. It's very complex, it's challenging, and at the moment it's proving to be very costly from a human life perspective, and I wouldn’t want to put New Zealanders in the front of human fire, or danger, unless I felt it was in the right interests of New Zealand.

GUYON Is it?

JOHN KEY Well you can see on Friday that we're just simply not immune from that now, it's a challenging situation, let's look at the review when it comes back.

GUYON Just in the couple of minutes that we have got left, I just wanted to talk a little bit and see whether we can elicit from you what your vision looking forward is as Prime Minister. You said in one of your quite famous speeches in 2007, the so-called 'underclass speech' and I'll quote this to you. 'For me politics is not about the pursuit of power for the sake of it, unlike some I won't measure the success or failure of my political career by the number of years I hold office'.

JOHN KEY That’s right.

GUYON How will you measure it?

JOHN KEY I'll measure it whether we make a discernable difference to the lives of New Zealanders and some things I care passionately about. I think economically we grossly under perform, and this government is not getting distracted on the side shows and issues of not national significance, it's firmly focused on an economic agenda. I will measure it on whether we live literacy and numeracy standards in this country, cos in my view it's an absolute disgrace that one in five New Zealanders leave school hopelessly ill equipped from a literacy and numeracy perspective. I'd like to measure it on whether we can actually deliver a better quality of living through out health system, and ultimately whether it's a safer society, and they're very core basic things, but they actually matter to the lives of everyday New Zealanders.

GUYON You said that you wouldn’t measure it about the number of years you hold office, how long do you want to hold this job?

JOHN KEY Don’t know is the honest answer, I'm enjoying it, I've been there for eight or nine months now, never a dull moment, and it's always challenging, and you know you have to have a thick skin if you want to do this job, but you also have to have a vision for where you want to go. I have lots of energy and enthusiasm for it, but look in politics it's first amongst equals, I'm there for as long as the National Party caucus want me to be there, and ultimately for as long as the New Zealand public want me to be there, and nine months into the job is a little bit early to start thinking about my retirement.

GUYON You hear a lot of people in political circles saying that you know perhaps two terms max, is that right?

JOHN KEY I don’t want to put a number on it, look I'll be there for as long as I think I can make a difference and for as long as I enjoy the support of the public and the caucus.

GUYON Alright, good place to leave it, thanks very much Prime Minister for coming in and joining us this morning, I appreciate it.

ENDS

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