PM Reveals Plan To Borrow Billions On TVNZ's Q&A
PM Reveals Plan To Borrow Billions On TVNZ's Q&A
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:
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.