Sunday 22 July, 2012

Shane Taurima interviews John Key

Anyone can claim a water ownership right in the courts, but believes it would be unlikely to succeed and would be "complex and convoluted".

Economic difficulties do not mean it's not a good time to take SOE sales to market.

Remains firm to superannuation remaining at 65 due to the "bond of trust" built up between PM and the electorate.

"Not uncomfortable" with the current cost of superannuation relative to GDP.

Youth unemployment is relatively low at 13.5% "compared to many countries like Spain".

High house prices are offset by low interest rates and increased capacity to borrow and capacity to repay debt due to higher qualifications in young people.

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Q + A
SHANE TAURIMA INTERVIEWS JOHN KEY

SHANE The annual National Party conference is being held right across the road at Sky City. Such occasions are an opportunity for the party to reflect on the past year and in this case, the past four years in government. After a difficult start to its second term, what is the mood like within the National Party, and what new ideas does the Government have to address the same issue they’ve faced from day one: a sluggish economy? Prime Minister John Key joins me now. Prime Minister, good morning.

JOHN KEY – Prime Minister
Morning, Shane

SHANE Let’s start with the water issue. You’ve told the Maori Party you won’t legislate against water rights. Can you give us an example for the people at home? What is a Maori water right?

JOHN Well, we’ve already negotiated and legislated for some of those, so I think the way they’ll look at this issue is when it comes to ownership, the Crown’s very firm position and view and long-standing view is that no one owns water. The Crown’s also recognised for a very long time, for the better part of over 20 years, that Maori have rights and interests when it comes to water, and those rights and interests are negotiated iwi by iwi, river by river. So if you take the Waikato River as a bit of an example, my government has negotiated a co-management agreement with Waikato Tainui. They are involved in decisions around the river. They’re certainly involved in the programme to improve the water quality. So rights and interests are recognised by this government as they were with the previous governments. We deal with them generally through the Treaty’s settlement process, but ownership, in our view, is owned by no one.

SHANE Are we talking about exclusive Maori rights, or are we talking about rights for everyone?

JOHN Well, in the instance where we negotiate them with an iwi, they are Maori rights and interests, and they’re long standing and historical, and they are to do with the connection and the connection of the local iwi with that particular water source. In terms of other rights, of course there are other New Zealanders that also have rights. They have proprietary rights that they use when they have a water take, for instance. There’s all sorts of interested parties when it comes to waterways. But I don’t think people should be fearful of negotiation of rights and interests when it comes to Maori and water. As I say, it’s been going on for the better part of 20 years. If you take some of the areas where we’re working at the moment, Whanganui River being a good example – there are others – working on Kaituna River at the moment, so, you know, Taniwha Springs – they’re all about improving the quality of the water and making sure that there’s a sustainable plan for development on the river.

SHANE So when you say that nobody owns the water now, could somebody own the water in the future? So, for example, in the event of a court finding that one person or a group actually does have some form of ownership right over a particular waterway, would you allow that to happen, or are you absolutely ruling that out?

JOHN Well, in my view, no one owns water, and it’s not just my view. That’s a well-established common-law position.

SHANE But it could happen, though, couldn’t it, because there is no current law preventing that from happening.

JOHN Well, in theory, someone could try and test their rights in the court about ownership of water, but that would be a very complex and convoluted case—

SHANE But it could happen, though, Prime Minister?

JOHN Well, anyone can claim an ownership right, but whether they would be legally successful is a very different matter. In my view, they wouldn’t be successful, and case law points to the proposition that I’m putting up. It’s not new to my government, it’s been the view of successive governments, and, you know, to argue that someone owns water, in my view, is nonsense. You know, water’s been round a very long time. People have rights and interests, and there’s all sorts of rights and interests that are negotiated, and the Land and Water Forum is a great example of a great many parties coming together to debate the future of water for its economic growth, its health, its relationship with iwi. All of those different things are debated in the Land and Water Forum, but this debate has been polarised by one or two people saying it’s about the ownership of water, and as we currently—

SHANE Including the Maori Council, who say, actually— and I’m sorry to interrupt you, but I’d like to move it on to the state asset issue. But the Maori Council says that they could take their case to the High Court, which could delay the sale of Mighty River Power. How prepared are you for that? And does it come at any cost?

JOHN Well, it’s the Government’s expectation that someone will probably take us to court and try and test their rights. We can’t guarantee that they will, but we’ll wait and see. It may in part depend on what happens as a result of the findings of the Waitangi Tribunal, but there have been murmurings from certain parties that they might take us to court irrelevant of what the Waitangi Tribunal says. But again the Government has demonstrated, we believe, over the last four years that the right way to resolve these issues is through negotiation, and we’ve been doing that with iwi, with hapu about their rights and interests. It’s been done in a calm and considered and appropriate way and for the long-term interests, in my view, of all New Zealanders. And I think that’s the right way to do it, rather than going through the court process. And, anyway, I don’t think the courts would really be in a position to say anyone owned water, but certainly the common-law view is no-one owns water.

SHANE Now, you’re about to announce more detail around the actual sale process of Mighty River Power, and we understand you’re talking about $1000 parcels for the mum and dad investors and also a loyalty scheme.

JOHN The details I’m going to announce will have to wait for my speech, but, I mean, essentially we’re moving to that next step now where I think New Zealanders are becoming increasingly interested in their opportunities to potentially buy these shares. We want to make sure that as many mums and dads out there as possible at least consider whether they’d like to do that or not. New Zealand has typically had an investment profile and New Zealanders have had an investment profile that has been dominated by housing and other investments, for instance, not a lot of New Zealanders owned shares, so this might present an opportunity for them to do so. And what we’ll be talking about at least at one level is how we can make that process as easy as possible. In the end, final decisions are up to them and their financial advisors if they choose to take advice, but we certainly want to have New Zealanders at the front of the queue. That’s what we’ve been arguing the whole way through while retaining that 51% majority ownership.

SHANE I’m just wondering, given the uncertain economic times that we’re facing, whether it’s still a good time to sell.

JOHN Again, you know, you can always— you’ve always got to make sure you get, I think, a fair price for the asset that you’re particularly trying to take to the market. In this case, it’s less than half of that asset, but nevertheless, you know, it’s a substantial portion. So, yes, economic conditions around the world haven’t been that flash over the last four years, and this government’s had to contend with those very difficult issues and I think for the most part have done a pretty good job of navigating New Zealand through that and building competitiveness in our economy. But, yeah, I wouldn’t want to say just because we’ve got a global financial crisis that’s still washing through Europe and some challenges that you can’t take something to market. Well, Fairfax did that exactly over this period in the last few, sort of, six months or so with Trade Me, doing exactly the same model – keeping 51%, selling 49%. The stock market has actually, globally, for the most part has been quite robust in the last four years, so—

SHANE But what about yourself, though, Prime Minister? Would you be advising a company to sell in these times, in these tough times?

JOHN Again, it would depend on the individual company, but all I can say, and it’s not for me to offer financial advice, is if you look at the performance of the stock market over the last four years internationally and domestically, despite the fact that these have been tough economic times, actually the stock market’s globally performed pretty well.

SHANE Given our low economic growth rates, the ageing population and the pay-as-you-go structure of our health care and pension system, Bernard Hickey says we face government debt— a government debt blowout over the next 30 to 40 years. Do you accept that? Is he right?

JOHN Not really, no. It would depend on the actions of any particular government. So again if you look at the National Government, we’ve been very focused on that issue of debt. So when we came in at the back end of 2008, we faced a recession that saw a contraction in the economy for about the nine months before we came in and a bit beyond that of 3.3% in a big reduction in our tax revenue. The Treasury advice to the Government was that by 2026, debt in New Zealand would be 60% of GDP. The government— the advice now from Treasury to the Government as a result of all the changes that we’ve made in the trimming back of the very expensive programmes that Labour left us is that debt will be 0%. Now, of course, obviously, it depends on the actions that we take and our capacity to grow the economy, but the way through all of the issues New Zealand faces is to build that competitiveness. We’ve actually got enormous opportunity. We shouldn’t sit around feeling sorry for ourselves. We should sit around identifying those opportunities They’re definitely Asia, they’re the power of the internet through the services-based sector, they’re actually a vibrant Australia which benefits from the mining sector, so New Zealand’s got a lot going for it. And to sit around and, sort of, extrapolate some analysis without taking into account all sorts of decisions governments will make over the next 30 years is bit farcical, really.

SHANE But Treasury has also estimated, Prime Minister, that with current policies and economic growth rates, our national debt would rise over 200% of GDP, something similar to what we’re seeing happening in Greece now. And I suppose the question is are you happy for your kids, for your grandkids to be faced with so much debt?

JOHN No, and that’s why the Government’s taken the actions we have. As I’ve said, when we came in, the advice was debt at 60% of GDP by 2026. Now the advice is 0%, and that’s four years of a National government. Give us longer, and we’ll continue to lift economic performance. I mean, people say things are sluggish, but, actually, in the first quarter of this year, New Zealand grew at 1.1%. It was the third highest in the developed world. Only Australia grew a touch faster at 1.2%. And if you look at Australia, they have a mild recession, I think, actually taking place on the east coast of Australia – Sydney, Melbourne, Brisbane. In fact, they’ve got 14% growth rate in the mining sector, and that’s a wonderful thing for Australia and not a bad thing, actually, for New Zealand that we get to feed into that. But, actually, we’re building strong competitiveness in our economy, and our focus has got to be on how we lift the growth rate of New Zealand, how we lift opportunities, jobs and stability for our families.

SHANE Prime Minister, the cost of superannuation will contribute a lot to that big debt. And can I just confirm that your position is still the same – that there’ll be no change to the super age while you’re prime minister?

JOHN Correct. That’s my position. And the first thing I’d say is I think that the bond of trust that’s built up between a prime minister or politicians in the electorate is very important. And I’ve campaigned on significant issues, and if I go about and change those, then I break my word. And the very same journalists that might argue I should break my word, mark my words will be bagging me for breaking a pledge I made to the electorates. That’s the first thing. The second thing is even without that promise, I’m not uncomfortable with what we’re doing. So our current level of cost of New Zealand superannuation is 4.5% of GDP. Many of the people that Fran or Bernard Hickey or others actually refer to, many of those countries are already well above the peak of the cost of New Zealand super, even at the height of the baby-boomers in New Zealand today. So take Germany – their superannuation costs are 10.1% of GDP today. We’re 4.5%. At the very most, we’ll rise to about between 7% and 8%. Secondly, if you want to have a serious debate about the cost of super and if your only objective was to keep it at broadly the levels of cost today – about 5% – then raising the age won’t do much for you, because raising the age from 65 to 67 between 2020 and 2033 reduces that cost by 0.7% of GDP. In other words, from, say, 7.7% to 7%–

SHANE Prime Minister, we—

JOHN so we have to follow what the—

SHANE Sorry to interrupt you—

JOHN all these other things.

SHANE So you’re not going to change your position while you’re prime minister? Can we talk about the young people? Because there’s a big debate happening at the moment about their frustration at the huge debt that they face, but also the huge cost that they face to build a future here. We’re talking about higher student debt. We’re talking about higher unemployment rates. We’re talking about, well, if they’re one of the lucky few to be able to afford to buy a house, it being extremely hard for them to be able to buy a house. You know, they’re taking on debt two to three times higher than what their parents paid. We’ve got a serious problem there, don’t we?

JOHN Okay, so firstly I’d sort of reject the statements that you’ve made.

SHANE We don’t have a problem?

JOHN You’re saying unemployment— Well, no. I mean, there are always challenges, and that’s the government’s job to address those challenges and deliver confidence to the New Zealand electorate that we’re on the right track, with a plan, and we have that plan. But you’re saying, for instance, unemployment’s at a very high level. Well, in fact, it’s 6.7% and falling, and probably—

SHANE But youth unemployment, though. That’s very high, though, isn’t it, Prime Minister?

JOHN I— Well, youth employment’s still relatively low in New Zealand at about 13.5%, depending on how you measure it, compared to many countries like Spain, where it’s 50%. So, yes, it’s a bit higher, but it’s naturally always a bit higher in most countries—

SHANE But what about housing affordability? It’s so tough, though, these days to be able to afford a house. What is the Government doing? We had, you know, Murray Sherwin from the Productivity Commission and Bernard Hickey on the programme last week saying we’ve got a housing crisis, especially here in Auckland, and the Government doesn’t seem to be doing anything about it.

JOHN Okay, so we don’t have a housing crisis in Auckland or in New Zealand, but there are clearly challenges. So you say it’s difficult for young people to buy a house. Well, I think if you go back to pretty much any person who’s bought a house in New Zealand, whatever their vintage, they’ll pretty much tell you that was a big struggle. They’ll mostly tell you they had to save hard to get a deposit and they had to borrow money. In fact—

SHANE But when we compare the prices, though, Prime Minister, the average price – house price – back in in the ‘70s, ‘80s, as an example, was three times the average wage. It’s now eight.

JOHN Okay, but if you go again and have a look at interest rates in New Zealand, they’re on about a 40- or 50-year low at the moment. The capacity to borrow money against a house is much higher today than it was back then, so the loan-to-value ratio is often at 80, 90, 95, even 100%–

SHANE But we’re talking about massive debt, though, Prime Minister.

JOHN Well, again, people’s capacity to pay that debt is arguably much higher because, again, if you go back and have a look, I’m 50 years of age, look at my generation. When I went to university, it was a very small group of people – less than 1%, I think – that went to university. Today the numbers that go to universities and their earning capacity is very very high, as it is in terms of tertiary qualification. So no one’s arguing there aren’t lots of things we can address, and personally I happen to agree with a lot of what Murray Sherwin and the Productivity Commission have said around potential land issues, around speeding up the building process, around development contributions. There’s a lot of things we need to address—

SHANE When can we expect the Government response to that report? Sometime this year will we see—?

JOHN Well, I hope so. I mean, look, we want to in a considered way go through that report, and there will be things we can do. But mark my words, when we do it, the very same political opponents, like Russel Norman and the Greens, who this week was raising that matter of housing affordability in question time, will be the very same person on your nightly news telling New Zealanders, ‘Don’t reform the RMA. That’s bad. We don’t want to do that.’ It’ll be the same with Labour. They’ll complain about it, but they won’t do much about it. In government, we have reformed the RMA, we’ve reformed building practices, we’ve been reducing the bureaucracy in the local-government sector, we’ve been streamlining the activities. So in my view, we are making great strides towards ensuring better affordability for New Zealanders, compared to the bubble we saw in the mid-2000s that saw the then Labour Government go and commission yet another report on it.

SHANE Prime Minister, unfortunately we have to leave it there. We are out of time. We thank you very much for your time this morning and all the best for the rest of your conference.

JOHN Thanks very much, indeed. All the best.

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