Q+A - John Key

Prime Minister John Key told TV One’s Q+A programme that the government could use a land tax to restrict foreign investment in residential housing under any re-negotiated free trade agreement with China.

“Well, we always have the right to make restrictions on investment in New Zealand, firstly through the Overseas Investment Office, depending on the criteria.”

“We don’t have the right to put on, funnily enough, a stamp duty, and the reason for that is that stamp duty was taken off the table, if you like, through the free-trade agreements we had not only with Australia and Japan, and that also includes Mexico.”

But the Prime Minister said, “at the moment, we’re not trying to stop the investment coming in.”

John Key said he doesn’t have any early indications on the numbers of foreign investors but that they are recording the numbers.

“.. my gut instinct tells me that the buying that’s happening in Auckland and potentially around New Zealand, but let’s just take the Auckland market, in so much that it’s, say, Chinese buyers or buyers of other ethnicities, I think they’re New Zealand-based. So I think they’ve got residency. They may or may not have citizenship. So the number of buyers I think that wake up on a particular morning, live in Shanghai and say, ‘Look, I’m going to go and buy a house in New Zealand for a million bucks or less,’

John Key told the programme a land tax could apply exclusively to non-resident investors.

“..we wouldn’t do it specifically for a country. We wouldn’t say, ‘For Chinese investors, you’ve got to have a land tax. If you’re Australian, you don’t.’ If we were going to apply that sort of thing, we would apply it to offshore investors.”

Q+A, 9-10am Sundays on TV ONE and one hour later on TV ONE plus 1. Repeated Sunday evening at 11:35pm. Streamed live at www.tvnz.co.nz

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Q + A

Episode 97

JOHN KEY

Interviewed by Corin Dann

GREG Corin Dann raised the housing issue with John Key in an interview at the end of the China visit. Corin began by asking would there be anything in a re-negotiated free trade agreement that would stop New Zealand putting the brakes on foreign investment in our property market?

JOHNWell, we always have the right to make restrictions on investment in New Zealand, firstly through the Overseas Investment Office, depending on the criteria. People have to get through that. But if you’re talking about residential housing, which tends to not fall within that criteria, then ultimately we have the right to put on some sorts of taxes. We don’t have the right to put on, funnily enough, a stamp duty, and the reason for that is that stamp duty was taken off the table, if you like, through the free-trade agreements we had not only with Australia and Japan, and that also includes Mexico.

CORINSo what’s still left in the toolbox?

JOHNWe can always invent things, but the most obvious one is a land tax.

CORINYou would actually do that? A land tax?

JOHNWell, at the moment, we’re not trying to stop the investment coming in. Obviously, we are recording the numbers. We’ll have much better data on whether there is actually a problem of Chinese-based investment or investment from other countries, because we want to be specific per country.

CORINWhat’s your gut on that? Have you had any early indication? Because it’s important. Is there actually some validity? We see it in Australia. It is a factor.

JOHNOkay, so I don’t have any early indications on the numbers. I could be proven to be wrong, but my gut instinct tells me that the buying that’s happening in Auckland and potentially around New Zealand, but let’s just take the Auckland market, in so much that it’s, say, Chinese buyers or buyers of other ethnicities, I think they’re New Zealand-based. So I think they’ve got residency. They may or may not have citizenship. So the number of buyers I think that wake up on a particular morning, live in Shanghai and say, ‘Look, I’m going to go and buy a house in New Zealand for a million bucks or less,’ and have no real connection to New Zealand I think is quite low. It doesn’t mean that number can’t grow over time, but I think my gut instincts are that people actually live in New Zealand.

CORINAnd this land tax, would it be able to be exclusively applied to non-resident buyers?

JOHNYeah. A land tax could apply that way, so we could do that, for instance, with all sorts of— well, anyone.

CORINIf the data came through that showed this is a problem in the future, you would do that?

JOHNWell, we haven’t made that call, but we’ve always said, look, if the thing became a runaway train on us and we were really concerned about it, that’s always an option available. And to be blunt, actually, land taxes are far more likely to deter people than a stamp duty, because Australia, for instance, has stamp duties. People tend to pay it. You only pay a stamp duty once on the way through. A land tax is an annual thing. Lots of countries have land taxes.

CORINIf we were to put in a land tax, would that upset the Chinese, do you think?

JOHNI don’t think any investor who’s in that category would like it, but the question is – can we do it?

CORINThey would understand?

JOHNYeah, they would do it, and we wouldn’t do it specifically for a country. We wouldn’t say, ‘For Chinese investors, you’ve got to have a land tax. If you’re Australian, you don’t.’ If we were going to apply that sort of thing, we would apply it to offshore investors.

CORINIf we can move to the South China Sea issue, your government was sent a very clear message via Chinese media to butt out of this dispute. But why isn’t New Zealand getting more involved and being more critical of Chinese aggression in the South China Sea?

JOHNOkay, so the first thing the Chinese would say is that there is no instability. Their argument would be that, yep, they believe they have a territorial right to the particular islands—

CORINDoes New Zealand believe they have that right to that territory?

JOHNWell, we can’t answer that question, because we simply don’t know. We don’t pick sides, and we haven’t gone and worked our way through all of the arguments when that process is actually in relation to the Philippines is happening at the moment in an arbitration, which I might point out the Chinese aren’t really a party to it and aren’t happy about, but nevertheless it is fundamentally happening. But New Zealand’s long-standing position, as I think a lot of countries’ is, is to say, ‘Look, this is an issue where China needs to resolve its territorial disputes with the individual country in question. I simply made the point that it’s a statement of fact that China have on some of these places like the Spratly Islands, whatever, built up essentially some sort of military—

CORINMissile bases.

JOHNWell, military capability, landing strips, all those sorts of things. But their argument would be, ‘This is our territory, and we’re entitled to do that.’

CORINWell, what about the Australian position? Do you agree with the Australian position that that build-up of missiles in that area or that build-up of military installations is counterproductive?

JOHNWell, we’ve had a statement that actually went— laid out the New Zealand position when I was over having the bilateral meeting with Malcolm Turnbull, and our main argument with the Chinese and with everybody else is to say, ‘Look, this is a very important waterway. It’s important for China, but it’s also important for New Zealand.’

CORINBut is it counterproductive?

JOHNWell, we would obviously prefer that the parties resolve the issues amongst themselves.

CORINWith the greatest respect, Prime Minister, it sounds very much like you’re soft pedalling on this issue and that New Zealand is soft pedalling on this issue because it does not want to upset the Chinese and put its free-trade deal at risk.

JOHNNo, I don’t think that’s right. I think what we are doing is being careful because we don’t actually understand whether the claims that are made that China doesn’t have, for instance, territorial rights in these areas are correct or not. It’s a very complex issue and goes back a long way. The Chinese have been and made these claims for a long period of time. It’s just not as simple as saying they’re right or they’re wrong. I can’t answer that question. I don’t know.

CORINBut what is simple to people is people can see that there’s China on one hand and they can see the United States on the other, and they can see these two great superpowers butting heads and where New Zealand fits in that. For example, have you talked to President Obama about this issue?

JOHNNot from memory at the nuclear summit, but—

CORINThis year?

JOHNOh, look, from time to time, the issue gets raised. I mean, the Americans raised the South China Sea issue.

CORINThen they obviously would like us to take a stronger stance, wouldn’t they?

JOHNWell, they understand the New Zealand position. They also make a call one particular way, and that tends to be that they say that— they’ll find on the side of the other partner, for instance. That’s fair enough. They’ve made that call in certain circumstances. They’ve certainly been stronger in their statements, but the point is they have long-standing relationships there, and whether they’re right or wrong, I can’t tell you. All I can tell you is there is a process. The process that we would prefer to see is the partners sort it out. It would be no different from if there was a territorial dispute on the Auckland Islands between New Zealand and Australia, who should sort that out? New Zealand and Australia, or should others like China and the United States take a view?

CORINJust finally on this issue, what is America saying to you? Would they like New Zealand to take a stronger stance?

JOHNI don’t think it’s so much they argue that we should take a stronger stance. I mean, our position’s actually quite a consistent position with what lots of countries take. They are concerned, and they make those comments publicly about their concerns.

CORINBut we’re part of the Five Eyes. We’re part of their historical alliance.

JOHNYeah, and we say the same thing in so much that we say, ‘Look, it’s an important waterway. Peace and stability in the region is really important, and if that gets destabilised, then that’s bad for China, but it’s also bad for New Zealand, and it’s bad for Asian growth.’ So we’re not inconsistent with what we say. What we do simply say is we don’t choose who’s right and wrong in this argument. Ultimately, that needs to be resolved, preferably by the partners.

CORINI just wonder. We’re coming up to Anzac Day, and if we look at our past, we have taken positions of right or wrong on these types of moral stances. Why aren’t we doing that?

JOHNBut it’s a really complicated things. There’s a nine-dash line that sits around near the South China Sea. China for a long period of time has said this particular area they believe is theirs. Others have said, ‘No, we dispute that sort of fact. It’s highly complicated. It’s not so black and white.

CORINBut what we could do is we could say, which is what China wants us to to do, is we could break away from the US.

JOHNWell, it’s not so much that. China’s position – what it says is, ‘Look, we accept that there is discussion by other countries.’ China’s view is that that territory is theirs, but they say in so much that there is a dispute that needs to be resolved, it should be resolved on a bilateral basis between China and the other country.

CORINOkay, another issue that cropped up in this trip, of course, was the extradition treaty that China wants. Is that really it? Is that what China wants?

JOHNWell, firstly, they like the relationship with New Zealand and the goods and services they buy from New Zealand and they’re important to their market. They need to feed lots of people. They’ve got growing middle-income consumers that want our products. So we shouldn’t underestimate what we sell to them. But, yeah, extradition is one thing that’s important to them because if you think about what Xi Jinping has done since he’s been president – he has been on a campaign and a bit of a crusade, really, to try and knock the head of corruption over and basically—

CORINAnd you’re willing to help him do that?

JOHNWell, we’re actually support the view that there should be no corruption in the world, and therefore if he’s dealing with that issue, that’s a good thing.

CORINCan we really trust President Xi, though, in terms of an extradition treaty? Look, we’ve seen The Economist, Time Magazine both write critical articles of President Xi recently about his growing crackdown on the media, on censorship, a more authoritarian approach that he is taking. Can we really trust him that we can send criminals, alleged criminals, back to China and that they won’t be killed or tortured?

JOHNOkay, so some of the latter things in terms of control of the free press and all those sorts of things are not so free in China. That’s not new news. That is something that’s been there for some period of time. every country’s a bit different. It wouldn’t work and operate in New Zealand, but it’s the situation that’s taking place in China. In terms of is he genuine about bowling over corruption and dealing with that issue, I think so far from what we can see he is. If he’s more authoritarian than other Chinese leaders, that’s his right. I mean, some leaders take that view; some don’t. The real point here is that in so much as we can trust him if we send somebody back, well, if they failed to meet that trust and broke that trust that we have, then all of a sudden that would be the end of extradition. I don’t think, actually, they are going to apply the death penalty to people if we send them back. I think what they’re trying to do is make an example to other people that you can’t steal money, as they see it, from China, go and hide in New Zealand and have no consequences.

CORINWhether it’s coincidence or not, Prime Minister, the look from the outside is that New Zealand is prepared to do an extradition treaty with China to get its free-trade deal. Now, is that a good look for New Zealand in terms of where its moral compass is at?

JOHNNo, I don’t agree with that position. That’s an easy thing for the Green Party or others to try and say. Actually, extradition’s been something that the Chinese have been talking to us about for a long period of time, and, actually, we’re dealing with an extradition case, as you’re quite well aware, at the moment, and that’s got nothing to do with the FTA.

CORINBut President Xi has raised it in this particular visit where the focus has been on the two sides jockeying themselves into a position as to what they want in a free-trade agreement. It looks pretty much like, from the outside, that’s the deal.

JOHNBut when you have a bilateral meeting, you always raise the things that are important. We’re raising the things that are important to us; they’re raising important things to them. Actually, in reality, they raised this issue in 2014 when they came. They raised it prior to the 2014 visit with me. So they’ve raised it lots.

CORINJust finally on the issue of tourism, are you confident that we’re not going to see some sort of boom-bust scenario with tourism, a bit like we’ve seen with the dairy exports to China? They really boomed and all of a sudden dropped away. Is there not a risk here that we could overdo it again?

JOHNWell, firstly, in terms of the investments, private sector investments, so in the end an investor—

CORINBut you’re leading the charge.

JOHNYeah, sure.

CORINYou’re out there saying that it’s going to be a million tourists in a year’s time or whatever.

JOHNWell, more than a year, but, yeah, my overall view is we’re on our way to four million tourists, not 3.2, and rising.

CORINBut do you see that there’s an argument that that’s risky? That if the market turns sour, that it’s risky?

JOHNWell, I guess if the government was putting in the money, then you could make a case. The government assists tourism through a number of different things we do, but relatively that’s small beer compared to building the hotels and running them and all the other things, and that’s the way it should be. Actually, private sector investors need to make that call. If the Fu Wah Group wants to put up its money and the Park Hyatt wants to run their hotel, actually, we welcome that, but they have to make the commercial calls. The only point is that there’s been this, I think, systemic change. You’ve got low oil prices. You’ve got lots more middle-income consumers, better economic activity. New Zealand’s a very attractive destination, and I just don’t think that’s going to turn around. It’s been a growth story in tourism for a long period of time. It’s not just a 2016 issue. It’s been happening for quite a while. I personally think, actually, Tourism New Zealand’s doing a good job. I think Kevin Bowler’s been a very good leader there, and the team actually deserves some credit because we are doing better relative to other countries. But are the numbers going to be greater in three years, four years, five years, 10 years from now? Oh, look, I’d probably bet every dollar I’ve got that it’s going to be. That’s just the international trend.

CORINPrime Minister, thank you very much for your time.

JOHNThanks very much, indeed.