John Key interviewed on TV ONE’s Breakfast at 7:20am today
John Key interviewed on TV ONE’s Breakfast at 7:20am today
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: Well today John Key heads to the United States where he'll meet the President, the Heads of Treasury and the Federal Reserve and prominent business leaders. Back home of course Labour's lurched to its lowest poll result in a decade, suggesting their tax plan has frightened the horses. So not much risk in taking off then? The Prime Minister joins us now, good morning Prime Minister.
Good morning Corin.
Corin: Before we get to the US itinerary, Richard Worth, he is our honorary consul to Monaco, is that an appropriate position for him to hold now?
John: Yeah well he's – and the way to think about it – Monaco's honorary consul here in New Zealand, so they came to the New Zealand government to the Minister of Foreign Affairs, asked to have him reappointed because he's resigned earlier, cos there's a conflict when you're a minister. The Minister sought legal opinion, the legal opinion was we have no real grounds ….
Corin: So we can't stop him though. But you yourself at the time of his resignation said you would have sacked him, didn’t think he was appropriate to be a minister.
John: I think the important point here is it's nothing to do with me, it's who do the people of Monaco want to represent them in Monaco, and here in New Zealand, and the answer is Richard Worth.
Corin: But it would have been nice if Mr McCully had mentioned it to you?
John: Ah well, it's one of those things. I mean I think because he sought legal opinion there's nothing he could do, you know it only requires his signature and the Governor General's.
Corin: Okay the US trip, is this a good time to be going, I mean in the middle of a debt crisis, do you expect to get the time you need with those people?
John: Yeah I spose bluntly, we don’t get a lot of choice. The President doesn’t give you lots of options, he gave us one day, and that particular day is Friday the 22nd, so that’s when we'll be there. Look it's a great opportunity, we don’t get a lot of face time really. When we go to things like APEC East Asian Summit these days we get to see the President, and that’s great but there's a great symbolism in the meeting in the White House, and there's a lot to discuss ….
Corin: Is trade the top on the agenda?
John: Yeah, trade is…
Corin: So where are we at in the time line of getting this free trade deal with those other countries.
John: Yes, there's eight countries in the Trans Pacific Partnership, New Zealand and the United States are two important ones. We want to see the deal completed. I think by the time we get to Hawaii for APEC at the end of the year, I don’t think a deal will be signed, but I wouldn’t be surprised to see a sort of heads of agreement or a letter of momentum or support or whatever being signed. So we are making moves.
Corin: And the Pharmac issue – where are we at with what we're gonna give up on Pharmac?
John: Yes we're going through all of those discussions. I wouldn’t anticipate we'll be at that level with the President. I mean they’ll be at kind of generally a higher level and its overall support for free trade only, we'll get down to the absolute details. But I think it's important to understand the point that both myself an Tim Groser, our Trade Minister, have made on a number of occasions, and that is look, we're not gonna sign a deal that’s not in New Zealand's best interests, Pharmac works very well for New Zealand. I think their bigger issue actually is around intellectual property, that’s really where their concerns are.
Corin: Okay, you're meeting the Federal Reserve Chairman. You might have a word to him about why he's pushing his dollar down and pushing ours up to 85 cents?
John: Well you saw it last week where he originally came out and said he wouldn’t rule out a third round of quantitative easing, which is where the United States have been buying their bonds, and that you know puts a lot of pressure on our exchange rate.
Corin: Do you see it getting to parity one day the New Zealand dollar?
John: I don’t want to speculate, cos a lot of people would be very concerned by that, but I am very worried about what you see in the United States at the moment. They’ve got you know essentially zero interest rates in terms of monetary policy, no room to move. In terms of fiscal policy how much money you can spend. They're borrowing 4.6 billion a day. So their deficit's 1.4 trillion.
Corin: So you'll express those concerns obviously?
John: Yeah I mean it's not for us to tell the Americans how to run their economy, I mean really we'll go there and get a sense of what they think happens next but they owe – their debt ceiling's 14.3 trillion. So a trillion is a thousand billion, just to give you a sense of how much money that is, and I think it shows why New Zealand's doing the right thing actually getting its debt under control and why our zero budget was right. We can't afford to be that exposed. But certainly it's putting a lot of pressure on our exchange rate.
Corin: Okay we've had a poll result, a big poll result, you know a good poll result for national. Do you think this is in some ways a little bit of a vindication that the public is not into Capital Gains Tax that Labour's put forward?
John: Yeah I think the way to look at that is – I don’t think the economy needs another tax right now, and I think the New Zealand public is saying we don’t want another tax right now. And bluntly you don’t need it I mean if you look at our plan. I mean we get back into surplus in three years.
Corin: But you have to sell assets though.
John: Yeah well I think it's an interesting debate around that. Yes we are going to sell 49% of those four assets, or up to 49%. But it's very different from the old days of asset sales when we keep majority control, mum and dad will be at the front of the queue. It actually widens out the investment pool. I mean if you go and have a look in New Zealand, a lot of mums and dads their current alternative has been a failed finance company. And actually I think for those companies allowing them to expand and grow is a good thing. I don’t actually see the release of capital through the mixed ownership model is a negative thing.
Corin: You say the public don’t want it, and maybe it's a little too early to say that the Capital Gains Tax, but there's been an enormous amount of support from the commentators, the economists, the OECD, Treasury head. Is this a case where National's not making the hard decisions, and you're going with public opinion but not leading?
John: The first thing I'd say is I don’t think it is too early to say that. I mean Labour basically went around and leaked their plan to the Press gallery for two weeks, it was in the public domain and there was no change on Thursday, it was exactly as they had leaked to the gallery, so that debate's been out there.
Corin: Are you avoiding the tough decisions here?
John: The second thing is no. We actually have a Capital Gains Tax in New Zealand, so if you buy and sell shares, or buy and sell an investment property then if you do that with the intention of buying or selling then you're subject to Capital Gains Tax, and even if you buy a rental property and say look my intention is to rent it, but miraculously I sold after a year or so, IRD will come after you…
Corin: But that has not been policed over the years has it? That has been a very grey area.
John: Well that may have been in the past but since we've been the government we've made a number of changes, including putting over a 100 million dollars actually into Budget 2011 to police that.
Corin: So theoretically you're saying you actually support the idea of taxing capital?
John: What I'm saying is we already do tax capital. A lot of people don’t understand that. What the commentators say – so if you go and have a look at the Treasury Secretary, or you go and have a look at the OECD or IMF when they supported Capital Gains Tax it's really important to understand what they're saying. They want what's called comprehensive Capital Gains Tax, that is tax everything. The family home – you know the boat, everything. Now we don’t support that, and the reality is it's not workable. Very few countries do it, some do, but very few do. So you go and have a look at this argument that somehow Capital Gains Tax is going to stop the property market going up, that’s nonsense. What it will do is put rents up. But 70 to 75% of all properties are actually in the family home, so once you take them out as Labour have done, the vast bulk of your housing stock is still subject to going up and down. That’s why countries like Australia haven’t done that.
Corin: But next time a boom comes though, people won’t put that money into the property investments as much though would they?
John: Well they won’t under the changes we made in Budget 2010 where we got rid of depreciation, but the point is where countries have had a Capital Gains Tax you're still seeing those spikes in the housing markets.
Corin: Prime Minister unfortunately we've run out of time, but thank you very much.