Monday18th April, 2011

TRANSCRIPT: Prime Minister, John Key interviewed on TV ONE’s Breakfast at 7:20am this morning.

The full length video interview can also be seen on tvnz.co.nz at, http://tvnz.co.nz/Breakfast

JOHN KEY interviewed by CORIN DANN

Corin: Prime Minister John Key, good morning.

John: Good morning Corin.

Corin: Could we start first with inflation today. Predicted that we're gonna get 5% inflation. That’s one of the highest figures we've had in a very long time. How concerned should we be about that?

John: Well at one level concerned, at another level it's important to understand what's driving the numbers. So when we came into office inflation was running at 5.1%, so that was the last year of Labour, and it started coming down from there, as you expect actually with recessionary conditions. Now there's a couple of component factors there. I mean the fact that GST's been added to that, pumps up inflation, but actually the Reserve Bank Governor's not worried about that, and as you would have expected, and typically when inflation rises interest rates rise, actually the
Governor cut interest rates. So we look through that. But it's oil prices that are concerning, they're around the world, they're beyond the control of governments and so that is putting pressure on inflation, and of course that feeds through to every product that we buy. So there is real worry…

Corin: Is the burden being shared here though, because it's going to be lower income New Zealanders who feel this a lot harder than people on higher incomes, and of course the higher incomes have had big tax cuts.

John: Yeah, so I mean if you go and look at those tax cuts, about two thirds of them were distributed to people with a lower middle income, so it's a bit of a fallacy that they're at the top end. I mean it's certainly true that higher income New Zealanders pay a lot more tax, so proportionately they're going to feel…

Corin: But is there anything that you can do to help those on the lower income, because proportionately they are being hit the hardest at this time.

John: Well I think we can do a few things, I mean firstly our tax cut programme at one level does help, so if you earn $50,000 or less you don’t pay tax in New Zealand if you have two children aged under 18, because of Working for Families. So maintaining that's been very very important. The second thing is now three quarters of the country pays 17.5% or less as tax, so that’s important. This year let's just try and make sure that people can keep what they earn. The second thing is the government can't control some things, so violent fluctuation in food prices or petrol prices, but what we can do though is we can make sure we take the pressure off the system. So by us controlling our expenditure then we take the pressure off the Reserve Bank Governor, in turn it's less likely that he will increase interest rates. That is a big deal because if you go back to say when we came in the floating rate was over 10% for your meeting. If you borrowed a couple of hundred thousand dollars on your home, the difference between that and what you're paying today is $200 a week less.

Corin: But people are calling for regulation of milk. I mean that’s the level we're at here. I mean do you see any merit in that?

John: I think the Commerce Commission should go and have a look at that whole issue. It would be a big call to have the regulation of milk, and generally in terms of that price, but you’ve got to ensure that the fair market is operating. Now there are differences between New Zealand and Australia, and we've had a cursory look at that. The early indications are that it's not the cost of production of milk, it's actually the retail prices, there's a price war going on…

Corin: Would we be shooting ourselves in the foot if we went back down that road given the benefit we get from Fonterra?

John: Well I would have thought so, but again you know that’s for the Commerce Commission to go and have a look at all the rules that operate.

Corin: You're happy for the Commerce Commission to go away and have a look, and if they come back and say there's an issue here you'll look at it?

John: Yeah, I mean that’s their responsibility and I think they're the right body to go and look at that. But you're right, I mean Fonterra there's a double edged sword again here. Milk price is high, and that’s not good for consumers, obviously they're a staple part of everyone's diet. On the other side of the coin ten billion dollars is a payout from Fonterra, trickles through the economy, it pays taxes, so there's a lot of – there's sort of a ying and a yang to this.

Corin: Your government riding high in the polls, another poll out yesterday showing 57% support. There will be core supporters of the National Party who will look at your loans package announced yesterday and say this is just more tinkering around the edges. Why aren’t you with that level of support making the harder decisions that they argue need to be made, because we're borrowing three hundred million dollars a week?

John: Yeah, so I mean firstly when you have a look at the budget you'll see that we're getting on top of that debt profile, and I think we did the right thing borrowing that level, and sometimes it was beyond our control like the two earthquakes we've had. But equally if we hadn’t done that, I think if you roll back to sort of 2009 what would have been the situation? Well it would have been much higher levels of unemployment, and the recession would have been felt even deeper.

Corin: But we're through that now, they would argue why not now, let's bring some interest back on student loans, let's raise the retirement age and deal with our longer term debt problem.

John: Yeah, see even the Retirement Commissioner doesn’t think we need to raise the pension age today, she argues it's in ten years' time.

Corin: Would you support it in ten years' time?

John: Well I've always said I'm gonna resign as Prime Minister if I do it, and I think you know your word's gotta stand for something, either you say it and you mean it or you don’t.

Corin: Do you regret saying that now though? Given what's happened with the earthquakes and where we've got to, maybe thinking well was that such a good idea?

John: No I don’t. I think it's important to have clarity and people need to understand actually what's happening. Personally I worry more about the increase in health care and the costs that that’s likely to present to the governments of the day, than actually superannuation. But if you go and have a look at student loans there's a lot we can do at the edges that make a big difference over time. So Steven Joyce has already implemented some of those changes, this is going to be another round in the budget.

Corin: You don’t like this policy though, interest on student loans, you were pretty unequivocal about that in the last few election campaigns.

John: Well I argued it wasn't good economic policy and actually I was right. I mean it costs a lot more than what Michael Cullen said.

Corin: So this is the point though, if you don’t like it why not campaign on that and roll it back?

John: At least 580,000 people have it. If you go around and turn round and say look interest is back on your student loan it will have quite a big impact on how long it takes them to repay. So I acknowledge there's a trade off here between extending considerably the length of time it takes to repay a loan, vis a vis the fact that what I don’t like about it is the message it sends to young people is go out there and borrow, and what happens is when you're 19 or 20 you're a bit bullet proof, you think borrowing some money, oh that’s not too big a deal I'll pay it back when I get a job. Then they all of a sudden get a job and they look down the barrel of a 20, 30, 40, 50,000 dollar loan, maybe more, and then all of a sudden realise that’s a big burden to carry. So I don’t like that element of things but there's very little I can do about that.

Corin: Just quickly on the royal visit, you’ve got two hours effectively with the Queen. I mean what do you expect to be canvassing there? Any particular issues? One issue I wonder whether she might ask about this issue of succession, or whether or not they might change the rules and allow a female queen?

John: New Zealand's supportive of that actually over time.

Corin: So you would be supportive?

John: Yeah.

Corin: So this is changing the law so the next in line can be a female?

John: That’s right yes. So New Zealand supports that view. Look I don’t know whether those changes will happen any time soon, but I don’t know whether she'll raise that over lunch, but she's passionately interested in New Zealand and every time I've met her in the past she's knowledgeable about New Zealand, she cares about the country. She I think will want to get quite an update on what's happening with the earthquake. I know she'll care a lot about the families of the miners from Pike River, she's been in correspondence with me about that issue. She'll want to know the heart and health of the country, how Prince William's visit's gone. It'll be great, I'm looking forward to going to Windsor Castle.

Corin: And has Ronnie got the dress sorted out?

John: She has, I am charged with the duty of carrying it to London and that is a responsibility far greater than running the country to be perfectly honest.

Corin: I can imagine, we look forward to seeing it, I'm sure it will be great. Good luck with the trip, thank you very much Prime Minister John Key.
ends