John Key Post-Budget 95bFM Interview
Rebecca Wright: Welcome to the BFM Wire John Key
Rebecca Wright: [Very] well thank you. Is it common practice for an opposition party to put out a shadow budget or is National doing it because it is election year?
John Key: It is part of proving the case that what we are promising is totally credible and affordable. We haven’t actually released the budget as yet but we are going to do that when we release the final details of our tax plan in the coming weeks. So, they will go together. Don gave a speech in the weekend where he gave some indication of what we are talking about.
When you actually see the [National] budget it’ll be very much a situation where new Zealanders will be able to understand and see that health spending is/will be maintaining the same levels as the Government. If there are changes these are the areas that these are the changes in other portfolios. It aims to improve transparency.
Rebecca Wright: Probably the most salient aspect [of the shadow budget] is going to be the tax cuts. Where would National get the money from to support these cuts?
John Key: There’s a lot of money floating around. One of the things that the government is trying to do – I saw quite an interesting a letter to the editor the other day that said it wasn’t a budget it was a ‘fudge it’- because when you really go and look at it, after paying for all the costs of running the country and after paying for the entire capital projects, even though some of these roads and things last for fifty years, this Government is left with about two and a half billion dollars worth of cash available.
There is no problem with having cash to give back to hard working New Zealanders who after all have paid that tax. It is a bit ironic I think that the Government currently is saying we have lots of money [and] as a Government are happy to keep it but you the consumers and you the taxpayers we don’t care if your debts are going up and you are struggling to make ends meet.
What we are saying is the balance is all wrong. The government is fat and happy and has got so much money they are wasting it hand over fist and we are going to correct that balance. That takes up a lot of available cash. Secondly we are going to be more disciplined with our spending going forward. We’ve seen a huge amount of wastage taking place in New Zealand and yet at the same time we don’t seem to have had enough money to correctly finance our Police force or fix our 111 problems. So we will be a lot more disciplined and we will certainly pay for a few of our capital items – one or two roads which are going to last 50 years – we won’t pay for them out of cash we will use debt to do that.
And that is actually consistent with the position that the current Government had expounded prior to having so much money that it was in the wonderful position of saying look we will pay for it [roads] out of cash.
Rebecca Wright: We all probably agree that the current tax cuts are a kind of pathetic placebo, if you like, but considering tax cuts cost billions of dollars if we look at the Australian example, it is obvious that it [cutting tax] is a huge undertaking. Would tax cuts result in higher interest rates and cuts in core areas of [government] spending?
John Key: No. I think the first thing you have to look at is around interest rates and say giving money back if you like and returning it to those people who have earned it may result in them spending it – that is correct. The current model is the government is keeping the extra taxes it doesn’t need and spending it anyway.
The government can’t have it both ways. It [the Government] can’t say look when we spend money as a Government it makes no difference to the economy but when you the consumer spend money it is somehow terribly wrong. Interestingly New Zealanders will know that in the last twelve months there has been seven interest rate hikes. Interest rates have gone up seven times!
The reasons for that – and treasury and quite a number of market economists have pointed it out – has been because the Government has been spending so much money the Government themselves has been putting pressure on interest rates. That is the first thing –
Rebecca Wright: That is not the sole reason interest rates have been going up.
John Key: A pretty good part of it has been caused by the Government themselves. My second point is we won’t roll out our tax plan and drive up interest rates. Don Brash spent fourteen years being Governor of the Reserve Bank getting inflation out of the system. He is not going to turn around and put it back in.
We have to be very cautious in the way that we do things. But cautious doesn’t mean that there is no room to deliver some tax back. There absolutely is. And we will make sure that is done in a consistent way to make sure that interest rates aren’t driven higher. I’m totally convinced we can do that and get the objectives we want.
Rebecca Wright: I did some reading over the weekend. In the Sunday Star-Times you talk about reducing bureaucracy – but bureaucracy [could be ] just another word for jobs. Which is effectively what this means, does it not?
John Key: Well what we’re effectively talking about here is… If you look at what is called the core state sector. I mean the state sector overall employs about 300,000 people that is one in six jobs in the economy that are run by the government. A lot of those are things that everybody wants - you know, nurses, teachers and the like. But the core state sector, that is the... bureaucrats if you like, that largely congregate in Wellington but they are in other parts of the country.
That [the core state sector] has grown from 30,000 people in 1999 to 40,000 today. That is a hell of a lot. It costs literally millions of dollars to run those people – 10,000 people more. The question is do they add to efficiency. Well Treasury wrote a report on this and delivered it to the Government in January and said not only are there no efficiency gains but we actually think you have a huge wage bill problem occurring.
Our point is really this - that we have hired thousands of extra people – they look for more work - that adds to more compliance costs and more difficulty in getting things done. So we [the National Party] just do not buy into the argument that New Zealand needs that many core bureaucrats and we’d actually much rather it [money] was poured into the front line people that are required.
We are simply going to operate a core state sector with less people in it and that won’t be a problem because the truth of it is one of the reasons that interest rates are going up and inflation is going up is that the Government themselves have been hiring so aggressively that they’re crowding out the private sector. So the private sector can’t actually find the people they want – that is why there is a skill shortage. The Government is actually competing with them and that is a crazy situation to be in.
Rebecca Wright: In previous administrations National cut the bureaucracy but was then forced to outsource to consultants thus creating a whole new set of problems – Is that likely to happen again?
John Key: Certainly I actually think some use of external consultants makes a lot of sense. The reason I say that is that with this government there is no evidence that they have actually cut the number of consultants that they’ve used. All they’ve done is just hired a lot more state sector employees and used a lot of consultants.
One of the reasons it is actually quite good to use consultants, in certain areas, is because they are like a SWAT team with a higher level of expertise. It is impossible for the state sector to recruit and pay for the kinds of people that you might want to go and fix up a problem. PricewaterhouseCoopers have been brought in to fix up the disaster at the Wananga [O Aotearoa]. You couldn’t have probably that expertise in the state sector easily – it was required to be recruited in – I actually think that is a good thing.
I don’t buy the argument that if you are just going to be cutting these people you are then going to be required to and we would be required to have extra amounts of consultants - even more than the current Government!
Rebecca Wright: Well you have gotten rid of people before in previous incarnations, in private organisations. Are you the right man for this job? A ruthless kind of well oiled machine?
John Key: A ruthless pig!
Rebecca Wright: I didn’t say pig.
John Key: You didn’t say pig – no. No, the truth of it is I’m not a ruthless callous hard individual. I have worked in the private sector for twenty years. I have been been involved in the finance area where inevitably in the good times you need to hire a lot of people and in the bad times you need less people. It is always a difficult thing when you are letting those people go. It is not something I’ve ever enjoyed. But it is a part of a function that has been required.
I think the most important thing is that you do the job with dignity and you make sure you explain to people what is happening and why. I am not going to go in there recklessly blazing a trail of recklessly firing people because I am on some sort of agenda to do that.
But – I can’t sit back while New Zealand families are struggling to make ends meet and don’t have enough to put food on the table because we are propping up a very bloated amount of bureaucrats. I know that they [the bureaucrats] will go and get a job somewhere else. Yes you have to make some tough decisions but there is no free lunch here. If we continue down the path the Government has got us on then hundreds of thousands of New Zealanders will have a much worse standard of living because of it. I don’t think that is right.
Rebecca Wright: What does National think about the privatisation of state-run organisations – say [as] we outsource parts of the bureaucracy – what about parts of the health care system?
John Key: Well in certain areas I favour that. Let me give you an example. If you look at the health sector - one of the things that is interesting things is that the Government has spent a huge amount more in health in the last six years and they are very proud of that. One of the things they are less proud of is the fact that productivity has actually fallen and not risen.
You might say - how is that possible given they have gone from about six billion to about ten billion in health spending? The answer is that they [the Government] has actually poured quite a lot of money into quite inefficient areas.
There is actually no reason why the state couldn’t contract [out] to the private sector all of the, say cataract operations required or all the hip operations. ACC already do that. If you are injured under ACC, they’ll very often pay the private sector to conduct that operation because they want to get you back in the workplace as quickly as possible. Because they are specialists in that area they can be a lower cost provider. Now I think that makes a lot of sense.
If I have a cataract problem, I personally don’t care whether the state sends me to a public or a private hospital. What I care about is that I get the operation quickly so I can go back and watch TV and read the papers and do the things I want to do. I think we should be encouraging that sort of efficiency because it’s there to be had. It is one of the reasons why countries like Australia are providing better health care than we are in New Zealand.
Rebecca Wright: Do you think Michael Cullen is good at his job?
John Key: Well, not really at the moment. I think actually this budget is really a look at the situation in New Zealand. We face two core problems – the first problem is we are a low-wage economy and we have been for a long period of time - secondly we have a brain drain which is starting to become excessive.
Really Dr Cullen has had a wonderful opportunity both in Budget 2004 and Budget 2005 to spend some money to address those issues through taxes and through how you spend money in growing productivity.
Both of those have failed. Either he doesn’t understand the issues or he is driving an agenda which is to try and buy votes from his core supporters. That is coming at the cost of the country. I think this [the 2005 Budget] is frankly a disgrace. I think it is disgraceful to give people 67 cents a week in 2008 if they earn $38,000 dollars or less. We can do better than that.
Rebecca Wright: Thanks for coming on the wire.