John Key on TV One’s Q+A programme:

Prime Minister John Key says New Zealand may get a dispensation on climate change targets because we produce dairy.

“Potentially yes, because in fact when we go and talk to even the American system and others, what they say to us you guys are on the right path and the path that they would expect to see following which is – this is about behavioural change. Now if you can't actually practically change something then obviously you need to find another way through, and that is technology, and a lot of money is being put that that. And this is a long term issue.”

Prime Minister John Key says he doesn’t think New Zealand can “force the pace” on reducing emissions.

“When India and or say America and China sit down and genuinely say we are going to reduce our emissions as they did the other day off the 2005 target by 26 to 28%, that matters because they're massive emitters, and they also force everybody else along. I don’t think New Zealand can force the pace. I agree with the view that says we have to do our share. We have to be seen as responsible in this area, and I genuinely believe we are.”

The Prime Minister says New Zealand could cope with another financial crisis.

“Yes. Our national debt levels are about 26% of GDP. Now you might say well so what? We are one of the lowest by a long way. Just take Germany, a country where we have Angela Merkel in town on Friday. We have huge respect for her and her country. Their national debt levels are still 77%...”

When asked whether he supports people holding more than five houses, or measures to restrict people owning more than five houses, John Key said, “Well I haven't seen any advice on that, and I'd want to have a look at what they're doing and whether it would practically actually work. I mean you know the fact that the Reserve Bank Governor might say that’s an issue, it may or may not be an issue, it depends.”

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 37
JOHN KEY
Interviewed by CORIN DANN

SUSAN We're going back to Brisbane now and the meeting of G20 Leaders there, New Zealand there is an invited guest of Australia. Corin joins us with Prime Minister, John Key.

CORIN Thank you Susan, Prime Minister thank you for joining us on Q + A. President Obama over the last week or so through his words and his actions has put climate change back in the forefront of the global agenda and at this summit. Is he pointing the finger at countries like New Zealand saying you need to do more?

JOHN KEY – Prime Minister No I don’t think so but what he is doing is following his natural instincts. So if you trace the roots all the way back to when President Obama became the President of the United States of America you will remember climate change was really at the forefront. He went off to Copenhagen, it was a big part of his election message, when he got elected in 2008. You had the Global Financial Crisis and it's natural that leaders and fundamentally countries would say okay what is the single most important thing, and it was economic recovery.

CORIN So now it's climate change?

JOHN Absolutely. Well as the economy has recovered, I think he feels as though he's got the room. He passionately believes in it, and he's doing something about it.

CORIN Our economy has been recovered. We've been the so-called rock star. Why hasn’t climate change been at the front of your mind?

JOHN Because we can't drive that international agenda. I've always thought you know it's sensible for New Zealand to play its part. We've got to be there…

CORIN But are we even playing our part. I mean are we pulling our weight. We're the 22nd biggest emitter. We have an ETS which many critics argue is doing pretty much nothing.

JOHN Well I would say yes, but I think the important thing with climate change to understand is that every country has a different profile. So you know if you look at some of these countries they literally have 1% renewable energy of their 1990 base, and maybe now they're getting to 10 or 7 or something like that. We are 70-75% renewable, on our way to 90%.

CORIN But we've got a dairy industry, our most important industry, which we're not putting in this ETS, we're not making them pay as polluters for carbon. And isn't that the wrong signal? Isn't it time we put them in?

JOHN No, I think we are making them pay indirectly. So they pay through their diesel charges or their other charges. But insomuch that you put a carbon pricing mechanism on, you do that to change behaviour, and if the behaviour you're trying to change is something that you have no answer for and the farmer can't control, so the methane and nitrate emissions of the animal, then aren't you really just putting a tax on for the sake of it?

CORIN But the question is, even Treasury, all the briefing papers to your incoming government say we are going to have to set a post 2020 target, it's going to cost a lot of money in carbon credits and in cutting back those emissions. Are you saying that again the dairy industry is not going to have to pay for that?

JOHN All I'm saying is globally leaders are really trying to sit there and say okay it's one thing to have this ambitious goal for climate change, and we need to do that. I think everyone pretty much universally accepts we need to deal with the issue of climate change. On the other hand, globally 14% of the emissions come from agriculture, and no one wants to see a reduction in the volume of food. In fact they want to see an increase. And I think what leaders are practically saying is let's be a bit pragmatic about this. Let's find a technological solution for agriculture, absolutely let's try and find what emissions are about.

CORIN When we turn up at Paris, with a target that you are formulating right now, the rest of the world's going to say oh okay we'll give them a dispensation because they’ve got a whole lot of dairy?

JOHN Potentially yes, because in fact when we go and talk to even the American system and others, what they say to us you guys are on the right path and the path that they would expect to see followed which is – this is about behavioural change. Now if you can't actually practically change something then obviously you need to find another way through, and that is technology, and a lot of money is being put that that. And this is a long term issue.

CORIN I'm just still confused. When we have this target Treasury says this is going to cost us, one way or the other it's going to cost New Zealand big time. Who's going to pay that then? Does it just fall on households through electricity bills and things like that?

JOHN Well there'd be, insomuch that you have an Emissions Trading Scheme, you know what you are trying to do is rightfully so, put the charge on those that are emitting more to change behaviour in other areas, and for those who are reducing emissions to earn credits as a result of that. And all I'm saying to you is it's quite possible that when we go to Paris that countries will say, not just because of New Zealand's position but because of their own, that this part needs to be quarantined off or needs to deal with it on a different timeframe.

CORIN If we quarantine dairy, I get that, and then you’ve got electricity and transport left as the big other emitters. They pay the cost or have to cut their emissions, but they're going to pass that on to consumers. So once again households pay and the dairy industry doesn’t.

JOHN Well that’s always been the case if you go and have a look at climate change policy. Ultimately it always flows through the consumer. It's one of the reasons why we've been saying, and we've said in previous election campaigns, when the likes of the Green Party get up there and say to you, we're going to reduce emissions and have a much tougher target, that is code for, you as a household will pay a lot more. And all I'm simply saying to you is I think New Zealand's absolutely perfectly positioned. We're seen as a country that’s doing our fair share. People could knock our Emissions Trading Scheme, but many of them don’t have it. Yesterday President Obama promised three billion dollars for a Green Climate Fund. He's still got to get that through his Congress, and actually the Republican dominated congress is saying, you know we don’t support that. So it's a combination I think of making sure that we're just practical.

CORIN You think you can get the balance right. In fact in its briefing says you know this is going to be how New Zealand could be judged in the future this target we come up with. Are you saying you can get a target that’s not going to be much of a burden on New Zealanders' households, but also not make us look like a laggard internationally?

JOHN That’s the balancing act we've got to get. We're .14 of world emissions. When India and or say America and China sit down and genuinely say we are going to reduce our emissions as they did the other day off the 2005 target by 26 to 28%, that matters because they're massive emitters, and they also force everybody else along. I don’t think New Zealand can force the pace. I agree with the view that says we have to do our share. We have to be seen as responsible in this area, and I genuinely believe we are.

CORIN Let's on to some economic matters here. This summit really is about ensuring we don’t have another global financial crisis, that we can cope with a global financial crisis. Can New Zealand cope with another global financial crisis?

JOHN Yes. Our national debt levels are about 26% of GDP. Now you might say well so what? We are one of the lowest by a long way. Just take Germany, a country where we have Angela Merkel in town on Friday. We have huge respect for her and her country. Their national debt levels are still 77%...

CORIN That’s not New Zealand's problems is it? It's private debt's our problem, and the housing debt fuel bubble is still there. While it might not be quite a bubble there's clearly concern. The Reserve Bank Governor now talking about cracking down on speculators. No more than five houses. Is that something you can support as a government?

JOHN Well in the end what we support is the Reserve Bank Governor making sure that inflation stays under control, because when inflation rises it affects all of us, but most of all it affects our competitiveness as a country, and those who are on either fixed income or are retired. It erodes their savings. Look the main point I would say is yes we have high levels of private sector debt. What's interesting about that private sector debt is it's largely foreign funded, and that’s a function of us having an Australian banking system.

CORIN You mention inflation, we don’t really have any inflation that’s 1%, that’s not the problem, it's housing inflation, and the Reserve Bank Governor is saying the government's not cracking down on property speculators, so he's going to. What I want to know is, are you happy for the independent Reserve Bank of New Zealand to go after to property speculators and not the government?

JOHN I think the first important thing to understand when people talk about housing. Actually I think it's a much more narrowly focused argument. It's certainly true in Auckland and it's certainly true in Christchurch. It is sometimes true in other parts of the country, but it's not pronounced anywhere near the way it is in Auckland. And in Auckland in the end the fundamental issue is ultimately supply.

CORIN And I'll give your government credit, you're doing everything you can in supply, but I need an answer on this. Do you support people holding more than five houses, or measures to restrict people owning more than five houses?

JOHN Well I haven't seen any advice on that, and I'd want to have a look at what they're doing and whether it would practically actually work. I mean you know the fact that the Reserve Bank Governor might say that’s an issue, it may or may not be an issue, it depends.

CORIN Okay, that’s fair enough, but do you think it is an issue? Is there an issue there where people who are earning five or six houses are too highly leveraged, because it comes back to this, it comes back to being too debt fuelled.

JOHN Well in the end the fundamental question isn't whether they own four or five houses. The fundamental question is, is there a bubble in the Auckland housing market, and I'd say to you the same thing I've been saying for a long period of time. Slowly rising house prices in Auckland are good, galloping Auckland house prices is not good, because when you get that situation where prices go up too rapidly, you ultimately do create a bubble, because people do pour into the market with an expectation that they’ll make that gain. And even if they have to pay a tax on that they’ll still have that expectation, and that’s what leads to that bubble. So the real argument here is how do you slow up that speed of increase? And the argument has to be supply more homes.

CORIN I mean there are a lot of central bankers here, that it's obviously a big issue. I mean are you comfortable with the Reserve Bank doing this part of the economic heavy lifting, and not the government. Is it something the government can touch now – property speculation?

JOHN No, there's often a lot of confusion I think in this area. So for a start off whe n we became the government we changed overnight the depreciation rules on rental properties, and that generated around about 700 million dollars a year, the equivalent of what Labour's capital gains tax would have been after about seven years. So people can't say we didn’t move, we moved actually quite rapidly. The second issue is, there is no evidence to support if we just put a straight capital gains tax on it will do anything to property prices. You go down the road here in Brisbane, or certainly go down to Sydney and Melbourne, and you will see house prices that are galloping away a lot faster than they are in Auckland. So the question has to be you know what will work. And my view of all those things are, yes of course you know you can sort of to a certain degree deter what's happening. What the Reserve Bank Governor's really say is, he doesn’t want to raise interest rates, because he can see that around the rest of the world that is against the trend, despite what he actually thought that rates would go up internationally, actually that’s not what's happening, and so he's looking for other alternatives.

CORIN Prime Minister John Key, thank you very much for your time.

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