LISA Well last week Labour Party heavyweights like President Mike Williams and Junior Whip Darren Hughes were in Sydney for the Australian Labour Party Conference. The Australian Labour Party under its new leader Kevin Rudd appears to be poised on the brink of victory for the elections later this year, so what did the New Zealanders learn that they can apply here where on present polling Labour is going to have the fight of its life to retain power next year. Labour's Junior Whip, Darren Hughes, joins me now. So are there any lessons to be learnt from the Australian Labour Party given it's been out in the political wilderness for so long?

DARREN HUGHES – Junior Whip, Labour
Well they're a bit different to us because they’ve spent 11 years in opposition, but obviously there's some pretty key things we have in common, both social democratic parties, both centre left parties, both trying to push messages about the future which is what Kevin Rudd's trying to do around sustainability and climate change which has been the Prime Minister's theme, so those sort of things were good to talk to our fraternal colleagues about and get an idea about how you can package those in a way that voters find interesting and exciting and can make a difference for people.

LISA So practical lessons and tips from there?

DARREN There were some practical things there particularly around how to get out and mobilise your party organisation and how to bring more people into politics, they’ve got compulsory voting so they’ve got a high turnout obviously, and we've gotta keep a high turnout by keeping people engaged in politics, they’ve gotta win 16 seats to become the government which is quite a big ask for them, so as a result they're very focused on their organisation and on getting more and more people involved and that’s one of the things we've seen in the last year or so in our own party here in New Zealand, more people getting active in politics, particularly young people on the university campuses and things, so they were good signs as well.

LISA Well the suggestion is that they are in with a fighting chance and mainly some of the commentators say because of discussion over the economy, because of high interest rates, and the suggestion that this has eroded John Howard's grip on middle New Zealand. Now some people might say that those criticisms could be applied to the Labour government here, are they right?

DARREN Well I think the main issue they were talking about at the conference about why John Howard's lost some support amongst what we'll call the Howard battlers is around their changes to industrial relations, their workplaces reforms which most people seem to feel have gone too far in favour of the employers, and so that’s been a big rallying call for Labour over there by saying look we need to have fairer industrial law, which is kind of what we did when we brought in the Employment Relations Act to try and right up the balance a bit, and that’s the main issue that seems to be driving things over there, people don’t feel they're getting a fair go because things have gone too far, and I think that’s probably the big driver there.

LISA But polling showed 80% of people were most concerned with the economy, with interests, housing affordability, and those are arguably the issues that your government faces here, so how do you deal with…

DARREN Oh for sure, and of course for Australia it's even worse because they’ve got parts of Sydney big parts of Sydney where working families live they’ve got property prices falling so people have gone out borrowed against their equity to maybe invest in a second property and now they're in a situation where property prices are coming down, well that’s not the case in New Zealand so that’s been one of the things where the interest rates have been difficult for them and I guess that’s why in a way for New Zealand Labour we're putting a big emphasis now on trying to raise the savings rate with Kiwi Saver coming in and trying to get people thinking about how they can save for the future so they have a nest egg of their own, because the Australians have had compulsory saving since the Hawke Keating Labour government of the 80s and they’ve got a trillion dollars in managed funds in Australia which is just phenomenal through savings, and so I guess that’s one of the issues for the future for us is how we can try and put more of an emphasis on saving so people can build up an asset base of their own.

LISA So compulsion, make it compulsory?

DARREN Well the Australians didn’t start off compulsory but then they went down that track, no I don’t think we should look at that just right away, I think we've got a new scheme starting which has automatic enrolment and you can opt out of it after a certain period of time, and I think we need to see how that settles down before we get to that debate, but what I'm hoping is that we can try and get much more savings in our economy because household debt has doubled in the last five years.

LISA The Australian Labour Party is concentrating and looking at marginal seats, you yourself are in a seat where you won by I think 400 votes.

DARREN Three hundred and eighty two, but let's not quibble.

LISA Not to split hairs, and you have the added concern that perhaps middle New Zealand is crying foul over this anti-smacking legislation, you’ve taken a bit of heat on that, so how are you going to secure marginal seats like yours.

DARREN Well I think you go out there with a positive message about how you're making a difference and you know for electorates like mine, the Otaki electorate there's a lot of working families better off in Horowhenua and Kapiti than there were say seven and a half years ago so you’ve just gotta go out there and talk to people about what you're doing to try and make their future a little easier a bit brighter and have good organisation and that’s been one of the good things about the big whip around that went around trying to raise money for the refund has been that heaps of people have come out of the woodwork who've said look my life's better off, my family's better off and we don’t want to see things change by losing a Labour government, we like having an independent foreign policy and so on and so forth like that, so if you go out strongly on those things and have good local organisation I think you know there's a good chance of holding on to seats like mine, and that’s what I focus on like a laser beam.

LISA Let's bring the panel into the discussion here, they're gonna have a big fight on their hands Bernard do you think at election?

BERNARD HICKEY – Managing Editor, Fairfax
Yes, particularly by the time we have the election the housing market could easily be in a flat situation or starting to fall into recession and as you pointed out in Sydney where people are starting to see negative equity, and that’s what you saw in Britain in the early 90s that was devastating for the economy. That’s possible here, many people have leveraged up to the hilt to buy those houses and I wonder how the government if this happens by the time of the next election deals with what could be a revolt in the mortgage belt, over higher interest rates and a housing market starting to fall.

DARREN Well I guess you just have to cross each bridge as you come to them, so it's a hypothetical and that probably comes down to you know the importance of having strong experienced leadership which is where Helen Clark you know for many years now has shown that’s the big strength that she brings to the job and that she's calm in a crisis and deals with challenges as they come up, so we've put some policies in place to try and assist with housing and to try and get people into homes, talked about trying to boost the savings going forward but what we'd have to do if that happened would be to you know have good leadership in the sense of people like Helen Clark and Michael Cullen to try and take the country forward if that was the situation, but I think rather than the hypothetical as such you’ve gotta just have forward looking policies which is why we're so focused now on savings.

CLAIRE HARVEY – Features Writer, NZ Herald
Speaking of the leadership Darren, part of the reason that Labour in Australia's been in the wilderness for 11 years is that they couldn’t sort it out, you know they didn’t have a succession plan and that they mismanaged the process of handing over leadership. Would you like to see or is there some sort of structure in place within Labour for identifying leaders of the future you know is there a plan?

DARREN Well we've got a lot of younger people who are coming the Cabinet ranks and at the last election there were six new Cabinet Ministers who came up and I suppose because we in the Labour Party elect our ministers that’s a good way of showing who the caucus has confidence in and people like David Parker, David Cunliffe, Manaia Mahuta, Clayton Cosgrove, those kind of people were elected at the last election to be in the Cabinet and they're pretty solid people all working in areas that are in the news a lot, making a difference for people, and I think that shows that we've got a lot of depth in that Cabinet, people in their 30s and 40s who will be the future of the Labour Party.

LISA So is the future leader in Cabinet at the moment?

DARREN Oh there's only one leader in the Cabinet at the moment and she's doing a great job, be there a long time.

LISA I just want to take you back to the housing from Bernard. With the Select Committee investigating now issues like the Reserve Bank Act, are you going to be looking there for some kind of solution and arrangement with John Key to help with the housing?

DARREN Well monetary policy has always been pretty much a bipartisan issue with the Reserve Bank Act of 1989 and that’s the sort of thing you'd look for because you wouldn’t want to see every time the government changed there being wild swings in monetary policy, that wouldn’t help anyone in New Zealand and wouldn’t help us internationally. So one of the things this Select Committee inquiry might do is begin to get a little bit of agreement around the House about what the future directions and shapes and ideas could be taken, but I think whatever happens you'd have to have broad political support for it because it's gotta be credible and you can't have people making decisions not sure whether a centre piece of your economy is up for grabs at the following election.

BERNARD There are things the government can do, I mean it's not just a matter of taking your hands off and saying well let's have a talk shop and a parliamentary committee, the government could reduce its spending growth which is what the Reserve Bank has pointed to, you're growing spend at almost twice the rate of economic growth, and also a large contributor to the inflation right now is the government fees and charges. What can the government do right now to reduce inflation and to control its own spending growth?

DARREN Well of course the government's about the same size as it was as a percentage of GDP when we came in and there's heaps of challenges in the economy, the public transport infrastructure, health and education, I don’t think cutting spending is the right thing to do for working families, so I'm not in favour of that.

LISA Alright, we'll have to leave it there, and we will be talking to John Key after the break about some of these issues. So coming up indeed National Party Leader John Key on how his party hopes to turn the economy around, and then Not in our Neighbourhood, state housing in Auckland.

COME IN RED
MOVING TO THE CENTRE?

LISA On Wednesday Prime Minister Helen Clark surprised everyone by agreeing to compromise with National Leader John Key over the wording of the socalled anti-smacking bill. For the past month Mr Key has been calling for a compromise which would not make criminals of what he calls good parents, but it's unclear whether Mr Key's compromise has gained the full support of those who oppose the bill. Mr Key has also been downplaying the likelihood of any future grand coalitions between Labour and National, but for the meantime he's been widely praised for his statesmanship. He's just flown in from a party conference in Palmerston North to be with us now. Good morning. Tell us what kind of reaction have you had to National working with Labour in this way?

JOHN KEY – Leader, National
Well I think an overwhelmingly positive reaction that we've put parents first ahead of politics. I think it was a difficult situation that the country faced, I think a lot of good New Zealand parents were in fear of it and actually I think the men and women of the New Zealand Police Force were also deeply concerned about how they would minister the law. So I think there's a strong sense that parliament you know parked politics at the door but we really did the right thing for New Zealand. It's not a perfect solution, no one's arguing that, no compromise ever is, but I think it was an important issue that had to be dealt with but I also think there are far more important issues that ultimately our parliament should be getting on and debating and I for one am happy that we reached out for this sort of compromise and that Helen Clark particularly led that from her side and Labours.

LISA Well what about within your own party because one of your own MPs Bob Clarkson he said this week that National let quote "Labour off the hook" and he would have left them hung out to dry. So within your own ranks how have they reacted.

JOHN Well they are supportive of the move we've made, there'll always be different views and this is an intense debate you have to remember even within our own caucus we had a split vote on this, so we allowed we had the party position but we equally allowed our own MPs to have a conscience vote effectively on it and one or two of them would have voted for the removal of Section 59 with no changes whatsoever. So you have to remember this has been intensely debated over two years, it's divided people, and look no one's arguing and I think the point probably Bob Clarkson might be making is that it's not a perfect solution, well that’s right it's not but my view's always been that it's a lot better than what would have passed without us, Labour had the numbers they had 63 votes to pass through something that would have explicitly banned smacking. I took the call and I think it was the right call to say we could have hung New Zealand parents out to dry for the better part of 18 months until we became the government and a further 18 months until we had a chance to resolve it, we could have let them be subject to very poor legislation, we could have I think taken the moral high ground and actually sought to resolve something, and my own personal view is that New Zealand parents will actually support us for that because while they may not like the legislation as much as we don’t I think that they will look at it and say thank goodness someone is prepared to put them first, it's about New Zealanders not just about politicians.

LISA So does this mean that National's given up on taking hard line moral stands on issues, you know civil unions, smacking, prostitution?

JOHN No it doesn’t, I mean firstly they're conscience issues as a general rule so that'll be something that they debate, but what you can be sure is that an incoming National government's priority won't be redesigning the social agenda, and I think it doesn’t matter what way you look at it Labour's had a very strong social agenda that they’ve wanted to change when they’ve come here, my view is that’s not the big issue facing New Zealand. The big issue are 350 workers at Fisher & Paykel being laid off, you know a million Kiwis now living overseas, a health system that’s failing every day New Zealanders, a situation where crime is rampant in our society, they're they big issues, they're the issue that National will face, you know an education system where one in five children leave school and they can't read and write or do maths and a National government that I would lead is gonna focus on those things, not on these tangential issues that I think have preoccupied Labour and frankly what we now know is they’ve actually run out of any other ideas, they’ve run out of things to do from what I can see.

LISA But you did cooperate with them this week, so in terms of cross party cooperation and you said in the end there will be a divide and I think both Helen Clark and myself know where that line rests. Tell us where is the line where you stop cooperating? Where are those dividing issues?

JOHN Well firstly the interesting thing of course is National's voted with Labour about two thirds of the time on legislation I think that’s probably about the same when Labour were in Opposition and we were in government. You don’t see that all the time because the reality is that we only get in the paper when we're opposing things, so I think from that perspective we often do vote, and you’ve seen it in things like for instance superannuation and other areas, foreign policy in particular we take a bipartisan view because again it's very important that New Zealand on the world stage is represented with a united view, but there's absolutely no doubt that we come at completely different perspectives on a lot of issues – how you handle the economy, Bill English would drive our economy in a very way that Michael Cullen is and Bill English is right. I think we have a very different view about the role of the State, we think it's very important but we don’t think it should be overwhelming so that there's a monopoly provision of state services in all areas. So they're very stark differences some of them run deep in to the 71 year history of our party equally as they do in the 90 year history of the Labour Party.

LISA You mentioned the economy, let's look at monetary policy. The Reserve Bank says that inflation's been pushed up by housing market, immigration, expansionary fiscal policy particularly Working for Families and a buoyant labour market, so let's go through this, what spending would you cut?

JOHN Well I think firstly it's about not only the quantity of spending but the quality of spending, so for instance it's not just that they're spending an additional four billion dollars a year in health, but it's the fact that they actually don’t get value for money out of that spending and that’s confirmed by Treasury and others, and we're now at a level in New Zealand where productivity is the lowest it's been since 1988, so it's in part about the quality of spending that they're getting and the allocation of that spending, I don’t think it's going in the areas that will absolutely push the economy forward. So you know I mean what will we cut? Well it's very important for us to look at that on an individual basis, we had some ideas last time, we don’t know actually what Michael Cullen's gonna roll out in this budget or the next one, but we do know it will be an awful lot of spending and what we know from the past is a lot of it's very low quality.

LISA Well can you tell us what your specific stance is at this point then on Kiwi Saver, do you keep it or don’t you?

JOHN We made it clear the other day that we'd back Kiwi Saver, and my view of it is that the architecture of it is good, I always said that when I was the finance spokesman, but my basic view was it wouldn’t work in its original form. Now we've seen some tax changes in terms of the employer contributions, if we believe everything we saw in your show Lisa then we're gonna see a lot more on the employee side and I suspect that’s the big deep dark secret in the budget. When you think that it costs around about 300 million I think for the changes on the employer side and not all employees are matched, that could be a very big number coming out of this budget, I wouldn’t be surprised if it's the better part of a billion dollars that it would cost to allow New Zealanders to pay in either 4 or 8% on a tax free basis which is I suspect what Labour are going to do.

LISA And that would be out the door for you guys?

JOHN No it's not out the door, I mean you know I just think it's a big number, well look at it, in the end let's assess it when we see it, we're not gonna pre guess a budget we don’t know.

LISA Okay how would you deal with distortion in the housing market?

JOHN Well there are a lot of issues, I mean Phil Hedley I think's been doing a very good job on that, I mean there are a number of things driving the housing market, without doubt some is around the land release issues, and that’s been an issue of land prices going up dramatically. I think there are changes to the Resource Management Act that can help that but also around building compliance costs and various building codes that I think can help.

LISA What about the Reserve Bank Act obviously there's a Select Committee inquiry, what might be your expectations from that?

JOHN Oh my expectations are extremely low I've gotta say. When we had the sort of I guess very briefly bipartisan talks late last year on monetary policy I don’t think it's out of school to say that Alan Bollard as the Reserve Bank made it clear, there are very limited things that can change. The reality is yes it's a blunt instrument and I think all New Zealanders would admit he's got probably the hardest job in New Zealand at the moment, he has to make decisions on historical data and have absolutely no impact for about 18 months because so many of our mortgages are fixed in nature, but the truth is what else can you really change and I think what we know is that the reason Michael Cullen wants these talks are largely in part I think because they're a decoy for the things he can control and Bill English has been absolutely right to point that out, it's around the government spending elements and the amount of pressure they're putting on the economy.

LISA Well I don’t know if you had the chance to see Darren Hughes because obviously you were flying up here, but he suggested that they were hoping to come to some kind of agreement with National during the course of this inquiry. So is there something on the table already?

JOHN Well there's no doubt that we always have sought bipartisan support for monetary policy and that’s because a monetary policy will last a lot longer than nay individual government will and our businesses deserve some degree of surety, so whether it's independence of the Reserve Bank or roughly the target now it's 1 to 3%, they're not things that we overly want to play political games with, but you know what changes could they realistically make, I mean we argued the case you know should they look at point targeting for instance as opposed to 1 to 3%, that seems to be rejected, we've moved the ban from 0 to 2 to 1 to 3, it hasn’t done much, there's not a lot around monetary policy you can change.

LISA What private talks though have you had say in the course of the last week with the government on monetary policy?

JOHN Very little really, look when I was in Australia and I sat next to Michael Cullen we had a couple of discussions about wide ranging things not specifically actually about monetary policy but about one or two economic issues.

LISA So it's coming back to New Zealand, have you had further discussions?

JOHN I wouldn’t say they're extensive further discussions you know when we met over the smacking legislation we had a general chat about the economy but it was a two or three minute chat nothing very serious.

LISA And nothing beyond that?

JOHN No.

LISA Alright, well how serious are you, you mentioned the common current with Australia at one point in Australia, how serious are you about looking into that?

JOHN Well it's not on the short term political agenda and that was the point I made, but the point I was really making is that was a forum of Australia New Zealand leadership and my view is we should be able to have open and honest debate and I've seen the arguments that say look it's absolutely crazy, but you know let's think about it from this perspective, there's a 100 billion dollars invested between New Zealand and Australia, they're our largest market, you know they're 20% of our exports, most New Zealand companies when they start export into Australia, so we're asking them to go into exporting at their infancy which really comes on the back of a speech I gave this week. Australian companies have a much greater strength they can start in New South Wales for instance and move to Victoria, so there's big arguments there. I'm not so sure around the loss of monetary policy that that is such a strong argument, I mean in Australia, Western Australia for instance operates in the same environment in New South Wales and it's equally true in the United States of America.

LISA So it's just an idea that you're happy to debate?

JOHN Yeah it was an idea we were happy to debate but it's worth remembering this, I mean in my experience from the financial markets and my background I think New Zealand are relevant of what the actual nominal interest rates are, we pay about a 1% premium because we're a small country, we borrow around about 160 billion dollars a year which means our interest bill is the better part of about 13 billion dollars, that would save every New Zealand household and every New Zealand business 1.3 billion dollars in total if we didn’t have to pay that premium. I think that’s worth having a debate over.

LISA Before the break we were talking about this week and your cooperation with Labour, well when it comes to that kind of cooperation perhaps Rodney Hide best summed up some of the pitfalls, let's have a look at what he said in the House this week.

’Question to the Minister of Finance is this. Has he followed Helen Clark's example and discussed the forthcoming budget with John Key? After all it's hard to see these days what the difference is between National and Labour on policy, and who knows he might get National's vote.'

LISA So does too much cooperation mean there's nothing to distinguish you from Labour?

JOHN Well I think finding a resolution to a bill like anti-smacking which had been putting the fear into an awful lot of New Zealand parents and getting a resolution to something that would have been passed without us and making it better legislation so that New Zealand parents and New Zealand Police Officers can have some greater degree of confidence, if that’s taking the wrong step then I'll plead guilty because I personally think it's the right call. I think it about putting New Zealanders first and that’s the only real area that we cooperate, we've been taking to the government I think in a vast array of areas, we've made it clear we have a distinctly different policy agenda from Labour and I think the New Zealand public know that, and I think the New Zealand public also know that sometimes you need to show leadership and I think last week we showed leadership.

LISA Alright let's bring the panel in on that note, going first to Bernard.

BERNARD Yeah it was a very interesting development which Tracey Watkins in the Dominion Post this week described as fascinating because it put forward John as a potential Prime Minister and reflects something that we wrote about last year when Dr Brash resigned that the key thing that changed was that it seemed to me the National Party was saying we really understand MMP now and we understand how to make things work in an MMP parliament, whereas Dr Brash from my point of view didn’t really understand that and the election strategy showed that, and this was an expression of how it seems National would work in an MMP parliament and perhaps as a government.

LISA I think the question in that perhaps is you said you were putting politics aside when you made that decision but were you really, I mean it was a political move to show leadership to show you as perhaps a man who could lead a government, was politics really put to one side?

JOHN Well no I think in fairness in that instance politics was, I mean it was a line ball call, as I said I think the law had passed and it would have passed without us, it would have made good New Zealand parents potentially criminals and I didn’t think it was fair to sit back and do that and I think the National Party unified behind me in reaching that conclusion.

LISA But were you sending encouraging signals or could it have been seen as a encouraging signal to the smaller parties.

JOHN Well I think one of the things Bernard's absolutely right about is that we live in an MMP environment, you can love or hate it and lots of people don’t like it, but the reality is we live in an environment where we need to be able to work with other political parties and yes National we hope will poll 51% or more in the next election, but the truth is we've done it once in our political history and Labour's never done it, and so my view is you do need to have relationships constructive relationships with other parties and I think they will look at us after last week and they’ll say, well a John Key led National Party understands that, understands the importance of being able to work and have you know some compromise and not being belligerent.

LISA So bearing that in mind Mr Key have you already started having behind the scenes chats with the minor parties?

JOHN Well we certainly do have good constructive relationships with them and we do reach out and talk to them all the time and that’s right across the board and I think there's a willingness on their side to talk to us and there's certainly a willingness in our side to have a good relationship with them. Now we don’t agree on everything by a long stretch of the imagination nor would we, otherwise they would be part of our party, but the reality is there's a lot of common ground in quite a lot of different areas.

CLAIRE Dr Cullen's been hinting that you might be more amenable to some sort of compromise on monetary policy but that Bill English is potentially the sticking point or the stumbling block or whatever cliché you might like to use. What do you say to that, is that right?

JOHN No, I think Michael Cullen's playing wedge politics. The reality is when I was the Finance Spokesman I was the Devil incarnated you know he had all sorts of great names for me, no necessarily ones you'd want to repeat to your mother, so the reality is, somehow I'm the Archangel Gabriel at the moment but I've gotta tell you I don’t think it'll last and no if he wants to negotiate with National then he negotiates with all of us and he certainly negotiates with our Finance Spokesman who I think will make a great Finance Minister unlike necessarily some of the results we're seeing at the moment.

CLAIRE Speaking of that if he is Finance Minister will your government if you have one run surpluses?

JOHN Oh for sure, look absolutely. The argument isn't whether we should be running surpluses, our argument has always been in recent times that Michael Cullen hasn’t used the surpluses as he could have, I mean he is running a surplus of 7.3% of GDP, you know on average Australia's been running 1%. Now the problem Michael Cullen has when he had the surpluses he had a low inflation environment so he actually had the opportunity to do some things, he actually didn’t do that, now he's got very large surpluses and he doesn’t have the room to move, and what's happened is instead of doing what Peter Costello did in Australia I think and that is year after year make the New Zealand business environment much more competitive, he basically chose to sit back and not do that, spend it in I think the wrong ways, and now we're in a position where we're locked up and we can't move in. when you look at Fisher & Paykel losing 350 jobs and they're the start of I think what could be a trend unfortunately. In part it's not just the high exchange rate it's everything else that business is facing around the lack of competition, ACC a terrible infrastructure, you know in a labour market it doesn’t always work, so you know I think we've wasted the last eight years frankly.

BERNARD In terms of common ground it seems likely in the budget we're going to see some sort of tax cut for Kiwi Saver swap going on here. Last year the Independent Financial Review started a campaign to say let's get rid of the inflationary impact of a tax cut by putting it into the savings account, what's your view on tax cuts into Kiwi Saver because Mr English doesn’t seem such a big fan of it.

JOHN Well I think he's got a valid point which is New Zealanders want tax cuts that they can actually have in their pocket because they're getting squeezed at the moment and they can't afford to pay the bills. I mean I think it's something we will look at, Bill hasn’t ruled it out, it's something we've gotta have a look and see what happens there, I mean arguably it's better than no tax cut at all but the real question is why New Zealanders had to wait eight years to get any tax cut at all. If it adds to the diversification of savings that’s a good thing, I mean I think there's no disagreement in New Zealand that while we don’t save enough we also save only in one asset class and that’s housing, but I think there are different ways of achieving that and one might be the argument that I pushed when I was the Finance Spokesman which is tax other areas of investments much more lightly, it's another way of achieving the same outcome, because one of the real issues actually around Kiwi Saver it's gonna be quite interesting, if the tax cut is 4 to 8% you can pay in tax free, the people that will be getting that are middle to high income earners, now they're the people who can afford to save and that’s fine but it's very interesting coming from a Labour government who will basically be saying to their voters, sorry we don’t care about you enough to give you a tax cut and we don’t care enough to worry about your savings because by the way you can't afford to save.

CLAIRE Is there any way to get those low income people saving apart from compulsory though, is there any way that they will save?

JOHN Well all compulsion would do is actually taking more money off them when they can least afford to do so, my view of it would be you have to lift their wages and we understand that, I mean that’s the big challenge, and then he could theoretically turn round and say well I'm automatically putting in a certain amount into your account every week, and in effect funding you into that, but that’s a very big fiscal hit and I can't see him doing it.

BERNARD Isn't there a big risk going into the election with a tax cut strategy that the government and the Reserve Bank could say you're giving lots of cash to people just when I don’t want you to do it when there's inflation risk if you do do it, how are you gonna propose tax cuts in inflationary environment where interest rates are now a key concern for people?

JOHN Well I mean the first thing is one of the reasons we don’t write our 2008 tax cut plan in 2007 is because we're always conscious of the economic environment, but the reality is that the programme we've always had is one that says we phase tax cuts in over time, it's not a big bang approach for exactly the reason that you're pointing out, I mean sometimes it'll be more appropriate than others, but the argument I would have with you is if we'd been in government over the last eight years there's no question that tax rates would be lower in New Zealand and I don’t think there it would be any more inflationary in fact I might argue with you it might be less. What I do think is we'd be more competitive because why is inflation happening in part because in the labour markets, you know Labour has been hiring so many people into the core state sector they're actually crowding out the private sector. You’ve had 21 quarters in a row where the public sector wages have risen faster than the private sector.

BERNARD Do you see an opportunity to cut that bureaucracy and how much could you cut?

JOHN Well we're certainly not prepared to grow it at the level that it's been growing it's unnecessary and it's overly bureaucratic and it doesn’t work, and I think when you have virtually half of commercial real estate in Wellington employed by the government then I think you understand it's gone a bit too far, and my view's always been big is not necessarily beautiful, but you know it's about the growth as much as anything else, it's not about wholesale going and having to fire people but there's big attrition in the public sector at the moment because people are unhappy there because they're not being listened to and I think they're filling in a whole lot of forms and making the private sector fill in a lot of forms which are going nowhere.

CLAIRE Just talking about state houses for a minute, the government's saying that those 145 houses that Phil Hedley's been talking about are actually 2,600 homes you know because they include apartment blocks and things like that. Isn't there value and shouldn’t you be someone who's really conscious of this, of having state housing tenants in areas where they can mix with people who are not state housing tenants, isn't there inclusion and aspiration in that?

JOHN The answer is yes, and I mean that’s why we support the situation where they actually rent a whole lot of properties, you know that Housing New Zealand rents properties, no one's arguing for big ghettos to be built but we're just simply saying that having a million dollar house which could be sold and then have three other houses bought for you know a much lower price, would house a lot more people and makes more sense.

LISA Thank you very much John Key for joining us.

IS THIS THE KEY TO AUCKLAND'S HOUSING CRISIS?

LISA Well the empty Hobsonville airbase north west of Auckland is now at the forefront of a government scheme which aims to build 3000 houses in a bid to ease New Zealand's housing crisis. Renee Graham went down to the local dairy to find out what the community thinks about the plans so far.

RENEE Hobsonville airbase, once the home of the Air Force's flying boat, but now the front line of the government's attempts to deal with the housing crisis. A government scheme would see 3000 houses built here over the next ten years, 15% will be state houses and 15% cheaper houses. Mahish Masters at the Hobsonville Superette says the development's hotly debated.

'Mahish: It's quite a controversial topic that one, we've got some positive feedbacks and some negative feedbacks on that.'

He says locals worry about the 500 proposed state houses.

'It's gonna bring the wrong type of people into the community that may live in these homes and what have you and create a problem with the security side of it – grafitti.'

Customers back him up.

'I guess it's maybe bringing in people who don’t have the same commitment long term to developing in the community as you do if you get large amounts of people who are transient.'

'I want my grandchildren to grow up in an area that they want to be in, not one where you have to develop a siege mentality before you go out your front door.'

Dean says another concern is the proposed intensity of the development.

'The proposal to have four storey housing down there, now that’s intensive and it's been proven overseas and by local commentators Owen McShane in particular, that that’s a formula that just doesn’t work.

But some say it's a great opportunity for the government to help first time buyers.

'There's a lot of middle income families as well that are not necessarily state housing material that would happily buy in this area given the right properties, sections, and sections round here are you know pretty valuable.'

And it'll bring a welcome change to the community.

'Change is a good idea and people – if it's presented the right way and the right – all the facilities are put in and everything like that then people will be happy to go with the change.'

Graham Barnard says it'll bring new industries and opportunities.

'I mean just imagine it down here with the cafes and the life down there that could be, the ferry services coming in, of course with the marine industry as well offers you know employment right on the spot.'

Consultation with the Hobsonville Land Company will be ongoing until the end of the year but with a community divided it seems they’ll have their work cut out for them.

LISA There you go, John Key deep in the heart of your electorate, who's right there, obviously people polar ends of the spectrum on their views of what's right.

JOHN I think firstly you’ve gotta remember that the people of West Harbour you know there's beautiful homes out there they’ve worked very hard to establish themselves and rightfully so in my view they're concerned about their property prices being eroded and I think they're fair in having those concerns. Secondly I don’t support Housing New Zealand doing that development because you’ve got to remember they’ve never ever done anything on this size and scale and so the process that they're having is really to build the state houses and then argue that the private sector will come around them, and that’s the risk that they don’t co-invest, that they don’t build all these houses and that you get a lot of sort of smaller housing and it becomes you know lower prices and therefore you have issues there. So I think there's a better way of achieving all that, firstly it's an excellent place for first home buyers, no one's arguing that, you could have some of form of shared equity with the land there, let first home buyers come in, there's secondly actually no argument that there would be people from state housing that would be in those properties at times because the reality is under the modern world developers built things and Housing New Zealand rents them off them anyway, so all I think the residents are saying is look let's just make sure - we've got a great neighbourhood let's just make sure that we preserve that, we maximise the land, they're not just like the comments opposed I think of a range of housing there.

LISA Alright thanks for joining us this morning John Key.

FINAL THOUGHTS – GUEST COMMENTATORS

LISA Turning to our panel for their final thoughts. Claire I saw a raised eyebrow there from you.

CLAIRE Well I think it's a terrible shame when people equate low cost housing and state housing with undesirable elements, you know isn't that code for brown people, I think it is, and I think that state housing shouldn’t be something that people are afraid of if it's managed well land if it's promoted well and if facilities are put in place, and perhaps as John suggests if there's a mix of private and public investment in an area.

LISA It has to go in someone's backyard doesn’t it?

CLAIRE Yeah well exactly.

BERNARD That’s the thing, this was a slightly depressing piece really about a challenge New Zealand faces over the next 10 to 20 years, how do we build a lot more houses, create a lot of supply into the market to solve our housing affordability crisis, it has to be in someone's backyard.

CLAIRE We can at the same time be wringing our hands about the fact that young families can't buy properties and then when someone suggests creating some properties that they can buy the residents don’t want them.

BERNARD And it's a real challenge because now so much of people's wealth is tied up in the value of their houses, that when someone builds next door it affects them directly right in the hip pocket, but if New Zealand is going to increase the supply of its housing we have to think about new ways of doing things, you know infill housing, high density housing.

LISA On the high density thing I mean if you look outside TVNZ there's multiple high rise buildings and I don’t know what you think about the quality of those but is that what you'd like in your neighbourhood?

BERNARD Well the thing is not everyone can have a lifestyle block in New Zealand and we all seem to want one we all seem to want the quarter acre paradise, that is gone if we're going to have affordable housing for first home buyers.

CLAIRE I live in a 10 storey building that was built in 1923 you know and has survived, there are parts of Auckland where there are beautiful old high density housing, medium density housing, they can be gorgeous you know as long as it's not developers building capsule apartments in Downtown Auckland, if that sort of process is managed well at the local government level it can be great.

LISA So the Hobsonville project, does it get your thumbs up Bernard?

BERNARD Yes simply because it just puts a lot of houses on to the market. Now it could be done in another way it could be done by the private sector but we just need a lot more supply into the market, and we need to use the land that close to our major cities. At the moment particularly in Auckland there are restrictions on using that land to build houses and if we're going to fix this affordability problem it's on the supply side, not on the demand side with more money.

LISA Thank you very much for joining us this morning.

ENDS