Monday 11th 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 PETRA BAGUST

Petra: Now it's been the job of Finance Minister Bill English to front some of the big issues of the past week, a rescue package for AMI Insurance, the ongoing South Canterbury Finance bailout, and now we're talking up our low wages to foreign investors for his bosses take on these things and more, we're joined by Prime Minister John Key, good morning John.

John: Good morning Petra.

Petra: Were you surprised to hear Finance Minister Bill English saying that this is something that we should take advantage of, the wage gap?

John: Well I think he was just really making the point that there is a wage gap. The government's been working hard on trying to narrow that, and actually we're making progress in terms of real after tax wages, but he's simply saying looking that is a strategic advantage theoretically at the moment that it's lower. Over time if we do our job properly actually that gap will narrow and so the advantage will go away. But it's a bit like we have an advantage with the exchange rate at the moment which is in good shape.

Petra: Over the time period that wage gap would narrow if you do your job properly. Has it narrowed so far?

John: Yeah it's started to do that, so in real after tax terms the reason being we've been cutting taxes faster than Australia, and so effectively in after tax terms yes it is narrowing.

Petra: Have the tax cuts put us in better shape economically?

John: Yeah I think so, I mean they've been neutral, so we've you know changed taxes in certain areas and reduced taxes in others, and look we are in a competition. I mean actually the person you had on earlier was right, I mean we're in the competition for skilled workers, and the reason we worry about Australia, because I mean Australia's in great shape, it's the number one performing economy in the OECD because of its mineral resources.

Petra: So then why do we constantly compare ourselves to it? Why have you set yourself this aim of closing the wage gap when we're such a different kind of a nation?

John: We are and look they have a lot of minerals they can go and dig up and export to China and that makes their life very easy, but on the other side of the coin every New Zealander has a free option, like they can get on a plane and go to Australia, and they can get a job there, because technically speaking there are no immigration issues like you would have if you went to the United States or the UK or other parts of the world. So we can't ignore Australia, and I mean to Bill's point, we are actually seeing some investment on that front. I opened Cannon's call centre on the North Shore last year. So they service all of their Australasian clients on the North Shore. Now that's partly because the quality of workers are really really good, and the wages are a bit lower, but over time we want to eliminate that advantage if you like.

Petra: But in comparison to Asian countries we can't compete on a low wage front and don't aim to?

John: No don't aim to. I don't think he's seriously arguing that. I mean there's a big difference between some sort of call centre they might run in Delhi, but you see those kind of call centres - well let's take Telecom when they outsourced their 018, that's a relatively low skill job, and so they pay very low wages in those countries.

Petra: Are you annoyed that this topic's come up?

John: Oh look it's just a statement of fact that he's made, but our main game here, and the main aim for the government is how you lift those wages, and lift them relative to Australia, and when you narrow that gap, that is when you see migration coming the other way, and the only other time we've had more people coming from Australia than New Zealanders going to Australia in about 40 years was when our wages were above theirs.

Petra: And this is an aim that we're going for, but a 30% gap is just absolutely massive. I feel like saying look let's not even try to do that, because we're not all getting on a plane and going and living in Australia.

John: And for a lot of very very good reasons. I mean the quality of living in New Zealand is great and not everything's rosy on the other side of the Tasman by any stretch of the imagination, but the government has to have an ambition of saying in my view, we're gonna produce the best conditions for New Zealanders and that's because those higher wages let you have more choices and better lifestyle, better things you can do in life.

Petra: So Bill English is making the best of a bad lot?

John: I mean it's taken a big out of context. He was just simply making a point that at the moment we are seeing investment because of those wages, he's not arguing.

Petra: It's not a new strategy?

John: It's not a new strategy, he's not arguing that's the right thing to do, he's just saying that leads to some investment at the moment, just like the very low exchange rate with Australia leads to some greater exports at the moment, but our aim over time is actually to eliminate those advantages, because that means our economy's growing faster.

Petra: All the best with that aim.

John: We'll keep working on it.

Petra: Look the government expressed disappointment this morning with Greenpeace, obviously disrupting Petrobrass's research there?

John: Well that's a perfect example of what we're talking about isn't it, I mean we have issued Petrobrass a five year license at Rotomara Basin to go and do some seismic work and have a look at exploratory work to see whether there is oil and gas out there, and they have a legal right to do that, it's in our economic zone, 12 miles out to 200 miles out for the most part, and they should be allowed to go and do that work. I mean no one's arguing that there are not environmental issues to consider, and everyone's aware of what happened in the Gulf of Mexico, but at the end of the day this is very early days and we want New Zealanders to have better jobs and better incomes, and there's a real opportunity here. Of course we have to you know be conscious of the environment and the risks that presents.

Petra: It's weighing up the risks with the opportunities?

John: Yeah we're not gonna progress unless we can manage those environmental risks, but I believe we can.

Petra: Speaking of environmental risks, the Kaipara Harbour Protection Society is now going to protest about the 200 proposed turbines, which has obviously wave technology, a protest this evening that they've invited you to?

John: Yeah, well I can't go, but I mean again it's like all of those debates, whether it's wind farms or in this case wave technology, their concerns are about the turbines that would be in the water and I think dolphins getting caught in those, impact on marine life. Again that's something that people who have much better expertise than me need to analyse, and give an opinion on, but all I can tell you is in every proposal there are always people that oppose. Now they might have a point but we also have enormous opportunities through wave technology. New Zealanders want renewable energy, so this is a project that's come out of Auckland University from memory, and you know I think we should let it run its course.

Petra: Protesting seems to be de rigeur at the moment. Do you think people can just feel like they can stand up and be counted and make a difference?

John: Well I think that's always the case in a democracy, and actually that's a healthy thing. I mean that way there'll be people that go on the protests, there'll be people that are opposed to the protests and for the most part there'll be the vast overwhelming bulk of New Zealanders who will look at that protest and form a view. Sometimes they'll say the protest is driven from self interest, sometimes they'll say it's wrong, and other times they'll say it's right.

Petra: So you don't have protest fatigue. There is a little feeling in the country about bailout fatigue. This feels like a difficult situation, another company, another bailout.

John: Yes, so I think we need to get a few things in perspective when it comes to AMI, I mean for a start if we didn't stand behind that company then it would have gone into receivership, and the reason for that is that it wouldn't have got its credit rating and so it would have gone into receivership, unless it could raise capital very quickly and that's unlikely. So if it went into receivership 85,000 policy holders in Christchurch would be left in the lurch. The second thing is the rebuild of Christchurch wouldn't happen any time quickly. So I actually agree, we don't want to buy insurance companies but we don't want to leave 85,000 Christchurch people in the lurch either.

Petra: So we understand that you had to be there for the people of Christchurch, but it potentially creates this moral hazard where people can take bigger risks because they realise if a company is too big to fail then the government will step in and look after us, or bail us out?

John: Yes you wouldn't want to rely on that as a strategy if you were in business, but what it does show you in the finance sector, when you become a large company then you actually do end up tying governments in to a certain degree. Now that's the moral hazard. So from our point of view the answer here is to have proper regulation and supervision of that sector, whether it's finance companies, insurance companies or banks. Now the insurance sector five years ago, they started working on new laws to supervise them properly. We passed them last year, quite frankly too late. The finance companies were exactly the same, and we can all talk about you know the bailout of them, that I've gotta add was brought in by a Labour government. So just before everyone gets a little too excited about that, but the bottom line was that whole sector was extremely badly regulated, people shouldn't have been allowed to do the things they did. So the only lessons we can lean is how we protect ourselves in the future. We can go and look in the past but that's not gonna save us.

Petra: From another bailout. Shall we watch this space.

John: That's the bottom line of why banks are so heavily regulated, because everyone acknowledges the impact they have on society in general.

Petra: And we never got to talk about the tie or Europe?

John: The tie was given to me when I was at the New Zealand Shearing Champs in Te Kuiti, there's a little black sheep, and I promised them I'd wear it, I was a week late because I forgot to do it last week.

Corin: What about the seat warmers for the BMW?

Petra: I wanted to talk about Europe.

John: Yeah I don't know what's in Dunedin.

Corin: I know why it's in Dunedin because it's freezing down there.

John: It's beyond me, it's not my car anyway.

Petra: Prime Minister John Key thanks for joining us this morning. Maybe Europe on next week.

ENDS

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