Transcript: Agenda IV's John Key

Transcript: Agenda IV's John Key

Presented by RAWDON CHRISTIE

Agenda Transcript courtesy of Front page Ltd - Agenda screens Sunday morning on TVNZ

RAWDON It's been eight months since John Key last appeared on Agenda, that eight months has seen him and National consolidate their lead over Labour in the polls to the point where he's now the hot favourite to win the election later this year, but he still faces consistent claims from the government that he has no policies, that he's indecisive and that he flip flops on policy and decisions. That criticism peaked in March when he was accused of being vague about whether his party would approve the Canadian takeover of Auckland Airport, and this week he's been under fire again for saying Winston Peters could be Foreign Minister in a future National government. So what does he really stand for. Mr Key is with Guyon Espiner.

GUYON ESPINER
` Well John Key you heard Rawdon mention the Canadian Pension Fund bid for Auckland Airport there. The government effectively blocked that saying that they didn’t want more foreign control of a strategic asset. Do you believe it would have been in the country's best interests for this deal to go ahead?

JOHN KEY – Leader, National
Well I think there's a clear process that should be followed Guyon and that is that you should have reference to the Overseas Investment Office. The Overseas Investment Office made it quite clear actually that the deal should be approved, there was sustainable and identifiable benefits and providing it met the criteria we've set that 51% is held in the majority hands of New Zealanders, in my view there's no reason why the bid should have been blocked.

GUYON So it should have gone ahead?

JOHN Yeah and I think – let's understand something here, this is not an asset sale, okay this is not an asset sale, the Labour Party might want to characterise it that way but in fact this is an asset rightly or wrongly that was sold a decade ago, this is about the change in composition of those shareholders, and I wonder how the New Zealand government would feel if the New Zealand Super Fund decided to buy you know 40% of the shares with 24.9% of the control of let's say Sydney Airports, would we deem them to be such a worrying investor that we'd be concerned about that.

GUYON Alright you rightly point out it was sold by the National government in 1998 now that brings us to this position. What is your position now as a National Party on state asset sales?

JOHN Well National's had some time to reflect on that and the position that we've decided to have is the following one. That in the first term of the National government there will be no state assets that will be sold either partially or fully.

GUYON So no state assets, you're completely firm on that?

JOHN That’s right.

GUYON Why is that because I mean this is completely contradictory to decades of National Party policy, in fact you go as far as to say that that’s core National Party policy, that the private sector does things better than the public sector.

JOHN For two primary reasons actually, I mean the first is that I think the real things that we want to achieve in the first three years of a National government they're gonna take quite a lot of our time, they're actually about building assets, about building opportunity and about building performance of the New Zealand economy. I am not at all convinced that if we were to spend some time floating let's say a quarter of an SOE that that would effectively be good use of our time, I think it would distract us from the real agenda of lifting after tax wages in New Zealand, so that’s the first thing, and secondly I think a lot has actually changed over the last 15 years the motivation for asset sales is different.

GUYON Let me take you back just five years to 2003 when you became the Deputy Finance Spokesman of the National Party, you said you could see no reason why the government owned three quarters of the electricity sector and to quote you no compelling reason to own Air New Zealand. Now what has personally changed for you to come out with this now?

JOHN Well I just think that the priorities and time that we have the motivations that we've got is going to be different. In the first three years we want to use that time. Over the last nine years the Labour government has not lifted productivity and not lifted performance of the New Zealand economy.

GUYON Okay but could it be more honest to say that you're not going to sell state assets because the public doesn’t like it?

JOHN Well I just don’t think the motivation is actually there, I mean I've gone away and had a pretty good look at these things, if you look at our 2005 policy at best you could describe it as pretty timid, it was a quarter of solid energy, some farms in Landcorp….

GUYON But just last year we had your Finance Spokesman and your Deputy Leader of the party Bill English on this show raising the idea of partially selling state assets.

JOHN Now he made actually some pretty good points which were around the performance and control of those assets so yes we want to demand better performance and of course one way of doing that is having external shareholders and that’s a model that’s worked well for Air New Zealand, it means that you have more independent boards, better analysis, but actually there are other ways of achieving that and I think what you'll see under a National government is we'll just adopt those other ways of ensuring that there's better discipline and controls on those SOEs.

GUYON So you told me a minute or so ago, no asset sales in the first term from there you'd look at it?

JOHN Oh well I'm not gonna write our sort of policies for 2011 before we've even had the 2008 election, but I'm telling you and I'm telling New Zealand quite clearly that we will not be selling state owned enterprises in the first term of the National government, if there's any change to that position then we'll come back to the people of New Zealand with transparency and seek a mandate for that.

GUYON Okay let's look at government spending and you’ve talked quite a bit about reining that in. In the last parliamentary term National had a policy of reducing the proportion of government spending as a percentage of GDP or the economy, from 32% down to 27% within 10 years, do you have a target now of what government spending should be?

JOHN Well Bill English probably will set some sort of target when he does his fiscals later in the year, so he'll present a budget.

GUYON And that will be to reduce the proportion of spending as a proportion of GDP?

JOHN That’s what we would prefer to see.

GUYON Roughly what do you think?

JOHN Well look I'll leave him to detail the exact numbers it's his responsibility to do that.

GUYON Do you think we'll see significantly less spending?

JOHN Well we're certainly going to grow government spending at a lower rate than the current government has been building it, and that’s because I don’t think all of the expenditure being undertaken by the government has been good expenditure. Quite a lot of it has been wasteful, there's been a lot of churn, let me just go back and look at for instance our attitude towards the core bureaucracy, I've made it clear that we'll be capping the core bureaucracy at 36,000 bureaucrats, that’s an increase of 10,000 in the last eight years under Labour and that will save us half a billion dollars.

GUYON And how do you do that because I mean what say you want someone to check how you're boot camps for bad kids idea is working say, I mean don’t you need bureaucrats, I mean your critics would say if you don’t hire one more bureaucrat you're not gonna have one extra idea.

JOHN Well you may do but you’ve got to remember that the natural attrition within the state sector's actually quite high, it's running somewhere between about 14 and 20%. One of the reasons it is quite high is there's quite a bit of dissatisfaction within the state sector about the way they're treated by the current government the politicisation of the state sector and the fact that they're not always – they actually do a lot of work for which there's very little you know evidence that the government listens to them, so there's plenty of room within that for there to be movement out of one department to another. Secondly I've made it clear that I will expect my ministers to go in and actually look at the performance of individual programmes, if they're low priorities and they don’t fit with the agenda of a National led government then of course we'd disband those, but that is what I would expect any minister that’s doing their job properly to do. I don’t believe in the wholesale approach where you say I'm going to knock 5% of the workforce off in every area, I came from running a very very large company when I was at Merril Lynch, we had 71,000 employees, so nearly double what the core state sector is in New Zealand, and quite frankly that approach didn’t necessarily work because for the reasons you pointed out sometimes you're reducing your head count in areas where you should be building it.

GUYON Okay, let's look at another big drag on government spending and that is superannuation, you said back in that 2003 speech that I mentioned that the single best way to reduce that liability is to raise the age of eligibility and you said that you don’t think it's an impossible ask to look at doing that gradually and gently over time, is that still your view?

JOHN No look I don’t think that’s going to occur, well I can tell you a National government we won't be lifting the age of eligibility.

GUYON So you’ve changed your mind?

JOHN Well it's actually a correct statement that that is a way of addressing, that you’ve gotta remember actually…

GUYON But you said that you could do that gradually and gently over time – you’ve changed your mind.

JOHN Well let me just go back to a point, that was in 2003, back in 2003 National hadn’t actually signed up to the New Zealand Superannuation Fund, now we have an ageing population, the population is roughly speaking about half a million aged over 65 today, that will double to over a million by about 2045, 2050, that sort of number. Now that presents a big liability for the Crown. There's two ways of addressing that, one theoretically would have been to allow the age to increase slightly, another would be to prefund that liability, at the point in 2003 National hadn’t signed up to the Superannuation Fund, when I became the Finance Spokesman I think it's fair to say I pushed the caucus pretty hard to adopt the New Zealand Superannuation Fund because it would prefund that liability, therefore we just don’t have that issue any more.

GUYON Okay let's talk about tax, would you cut the 39 cent rate on income over $60,000?

JOHN Well I'm not going to detail our tax policy on the programme today.

GUYON Well why not because even Jim Anderton tells me he wants to cut the 39 cent rate I mean surely you can come out as a centre right politician and say I want to cut the top rate of tax?

JOHN Well that’s nice but Jim's also been in government for the last nine years and I haven’t seen him do much to reduce the tax liability. Like Labour who over the last eight or nine years have had the best conditions possible to cut taxes and have chosen not to do it.

GUYON Okay what are your priorities then for who should get the tax cuts?

JOHN Well the priority is to do this and that is to reduce the tax burden on working New Zealanders, now a second part of that is you’ve got to understand tax is partly about raising enough income and being able to spend that income on what you think as a government are important issues but secondly it's about putting the right incentives in the economy, the incentives to work to save to get ahead, a feeling that you can make a difference in your own life and for many New Zealanders they’ve seen a reduction in that, they either have very high effective marginal tax rates or if they do pay the top personal rate, well over 50% of their income now going in tax, so look across the board we're looking at making sure that we reduce that liability on New Zealanders and we're right to do that. Michael Cullen was actually totally wrong in 2005 when he argued it wasn’t possible, and he's the one that contradicting himself.

GUYON Okay but he's now going to cut taxes, what do you think Michael Cullen will spend in the budget on tax cuts? What do you think he'll spend?

JOHN Well I think he'll spend over two billion and one of the reasons I think that…

GUYON So that means that you will spend yourself well over two billion, you’ve promised to outbid him.

JOHN Well one of the reasons I think he'll spend two billion is let's understand what's going on here, this is a desperate government that will now be reckless with whatever they do, so they might not only spend two billion they will throw the kitchen sink and the microwave and the rice maker at this particular budget because they're trying to buy a fourth term.

GUYON So it's reckless for him to spend two billion but not reckless for you to spend what two and a half three billion?

JOHN Well it depends enormously on how you structure those tax plans. When we went into the 2005 campaign with a two billion dollar tax cut plan it would have delivered for 85% of taxpayers a tax rate of 19% or less, around about $40 a week for someone on the average wage. Michael Cullen went to the country and told everybody it was unaffordable, it was reckless, it was bad, that was at a time when the surplus was huge, we're going into a position where income is declining, Michael Cullen is now arguing miraculously in 2008 that he can somehow cut taxes, so he is being extremely inconsistent.

GUYON Okay, let's move this from economic issues to the issue of leadership. In your first speech as Opposition Leader back in 2006 you said that you would share some of what drove you, some of what you believed in and some of what you would be bringing to the job. How do you respond to critics who say that we still don’t know what John Key stands for at all?

JOHN Well you need to go and read my speeches.

GUYON Well we do read your speeches, you talk about things like personal responsibility, personal freedom, how would people have more personal freedom under a National government, I mean are you gonna roll back smoking in bars, the laws that say that you can't smack your children, or that schools shouldn’t be giving fatty food to children. Are you gonna roll back any of Labour's social reforms?

JOHN Well personal freedom's about choice, so personal freedom's about being able to say that you can make a decision for yourself and your own family to do the things that you want to do, and I think you'll see from us in quite a number of areas, firstly we'll be lifting after tax wages, we'll be giving people the opportunity…

GUYON But it always comes back to that doesn’t it, it comes back to tax cuts and I get the sense that you're Labour with tax cuts for parents and boot camps for bad kids, I mean where are the points of difference.

JOHN Not at all, we are quite happy to engage and involve the private sector and the not for profit sector, we do not see the government as the sole solution to every problem, that’s why we don’t think we need to run increased government expenditure at the same rate as this current government, you will see tremendous choice from us, I've made it quite clear in the areas like for instance independent schooling, I think there's a place for independent schooling and we'll be prepared to fund those at a slightly higher level – why – because it's an extremely elitist policy at the moment the current Labour government's got that locks middle New Zealand out of that. We've made it clear that we want of have public private partnerships in the involvement of infrastructure, so look we believe in personal choice and freedom and responsibility.

GUYON But isn't it true that National has basically changed its tune on just about every major public policy platform, you look at climate change, you look at….

JOHN No.

GUYON It absolutely has changed its opinion on climate change, you were calling it a hoax just a couple of days ago. A couple of senior members of your party don’t even believe it's true, even your potential transport spokesman.

JOHN No, Guyon, you need to go and read the transcripts.

GUYON I have.

JOHN I have not said climate change is a hoax, I've said Kyoto is a hoax.

GUYON And now you want to sign up, and now you're saying National would honour its commitment to Kyoto.

JOHN Well we ratified Kyoto whether we liked it or not that happened in 2002 under a Labour government, and the reason I thought Kyoto was hoax is climate change is a global problem, it needs a global solution.

GUYON So you're signing up to a hoax?

JOHN Well we've signed up, we've signed up.

GUYON You're going to continue that though?

JOHN Well look it would be a big call for a future New Zealand government to welsh on it's responsibilities under Kyoto protocol, you know this government signed up, we believed as a political party that it should be ratified when our major trading partners ratified, that was no the approach Labour took, but when you're in opposition sometimes you just have to accept that the government of the day adopts international policies.

GUYON Okay, let's look at another big international and foreign affairs area and that is the Free Trade Agreement with China. Now I mean how can you possibly have as you’ve said Winston Peters as a Foreign Affairs Minister under a National government when he opposes this deal?

JOHN Well I think firstly you’ve gotta say it's conceivably possible. Now look and from National's point of view we're going to go out there and seek to get a mandate of 50% of the vote or more, I can't tell you what the makeup of parliament will look like and what the makeup of the government will look like post 2008, that will be for the voters to decide.

GUYON But don’t you think those voters will be looking at Helen Clark and you and thinking you know here's a guy polling 3% in the opinion polls and he's leading you guys around by the nose?

JOHN Yeah and if the New Zealand public decide that he polls under 5% and on the assumption that he doesn’t win a seat then he won't be in parliament.

GUYON Okay let's look more broadly at foreign policy, because back in 2003 when the debate about whether the war with Iraq should proceed, Bill English scoffed Helen Clark for waiting for the UN to make a decision and he said multi lateralism is not an excuse to have our foreign policy made by France and Germany. Now you told the International Affairs speech this week that our default position of default setting whenever there is a serious crisis in world or regional affairs is to ask what action is the United Nations going to take. Now again are you just saying that Labour was right all along?

JOHN No what I'm saying is that we are going to run an independent foreign policy and for a small country I think that’s the right approach for us to take and I think within the framework of that is absolutely right for a National led government to look at multi lateral arrangements whether they be the United Nations, the Pacific Forum or Commonwealth and in the first instance take our guidance from them. Now you know obviously any sovereign nation reserves the rights to act outside that if they wish to but I think it is right for New Zealand to take that approach and I think it backs up everything I've ever said since I've been the leader of the party.

GUYON But why has the party changed that position which was essentially to look first to our allies, I mean the United Kingdom, Australia and America, and now you're looking to the UN I mean again you're changing decades and decades of National Party policy and National Party direction there aren’t you?

JOHN Well it's a degree of pragmatism, I mean I became the leader within about the first week I said we're going to keep New Zealand's anti nuclear free legislation, that meant effectively for all intents and purposes ANZUS as a relationship was a protocol treaty was not going to be invoked, therefore New Zealand has and will continue to be on a path of multi lateral support, or multi lateral relationships, so look from our point of view we're going to be an independent – we're going to run an independent foreign policy, and you know I think that’s the right approach for New Zealand, I think it will serve New Zealand well and I think it makes sense given that our focus of attention is particularly in the Pacific.

GUYON Just before we leave it, you’ve said several times in this interview that you may have to work with other parties that’s a reality of MMP, you’ve got the Maori Party in this issue of the Maori seats, can you just tell me again what is the rationale what is the case for abolishing the Maori seats?

JOHN Well I think it goes all the way back to the arguments made by the Royal Commission in 1986 and further back which was the Maori seats were a temporary measure, I mean they were there because Maori males couldn’t get a vote because they weren't land owners and I think we've moved on. I'm not at all convinced that representation for Maoridom is best reflected through Maori seats, if it was then Maori probably would have achieved a lot more over the last let's argue at least 40 or 50 years but they’ve been aligned solely with Labour. I mean you can make a case very strongly I think that probably the one thing Maoridom felt pretty strongly about in recent times was the Foreshore and Seabed, those members of the Labour Party and Labour caucus that hold Maori seats at the end of the day I'll be very surprised if they agreed with the position that the Labour Party took on that, but in the end they voted for it and it shows you it doesn’t work. We don’t need that, actually what we do need to do is listen to Maoridom where it makes sense and have all members of parliament reflecting the right approach.

GUYON Alright that’s a good place to leave it but I'm sure Rawdon and the panel will pick up on many of these issues.

RAWDON Guyon thanks very much.

RAWDON National Party Leader John Key is still with us in the studio, now is an opportunity for our panel Nevil Gibson and Colin Espiner to further question Mr Key on his party's core principles. Nevil you want to pick up on state owned enterprises.

NEVIL GIBSON – National Business Review
Mr Key you’ve laid out the business of what you call asset sales but you’ve also made a case that you're going to build the economy and everyone's going to be better off, but an analysis by Professor Bowden of Victoria University says that in productivity and that sort of thing the biggest thing holding the New Zealand economy back is the role of the government and the key one is energy and the SOEs are in there, and so how are you going to increase productivity and improve the energy security while not involving another way of owning those assets other than straight out government ownership?

JOHN I'll be surprised if it's the ownership of the energy assets that’s the driving issue there, I think there are significant issues around energy and they will be firstly how energy is treated in the emissions trading system. Secondly how quickly if at all we can find technological solutions for thermal power which may or may not be required on a pecking basis or in general. It'll be ensuring that we've got the right assets in place and the right investment programme in place for for instance Transpower and I think making sure that we have logical signals coming through things like the Resource Management Act, or Acts of Parliament like the Resource Management Act which are holding back a lot of the renewable energy which is required, so from my point of view what is gonna drive business and productivity it's ensuring that the security of supply occurs at a realistic and affordable price and that New Zealanders and particularly investors can take confidence that the energy system will work.

NEVIL But does that mean using the Electricity Commission, these are sort of state command driven type structure we've got at the moment, what about involving more private capital, I mean really that’s going to be the driver of greater efficiency isn't it?

JOHN Look I don’t know whether it's entirely an issue of capital, I think there's no real issue for those SOEs to raise more capital, I think it's the signals that they face, that’s what's frustrating them at the moment, and certainly the emissions trading system is something we've just gotta make sure that we get right that it sends the right signal, that we want to increase the amount of renewable energy but they also have the right signals that it's worth investing in some of these big hydro or wind technologies and opportunities that present themselves.

NEVIL Most people in business would say the emissions trading scheme's going to be a very expensive cost to the economy to consumers, it's going to again drive down growth rather than raise it, so your position on that is to pass the legislation before the election or are you going to look to say Australia where they're going to introduce a similar scheme but take a much longer time to do it.

JOHN Let's take one step back and say our policy is to reduce emissions by 50% by the year 2050, we believe the emissions trading system presents a very credible mechanism for helping to achieve that, so yes the emissions trading system is very important but we also want to do one other thing and that is make sure that we balance our environmental responsibilities against our economic opportunities, and I think you're right, the submissions before the select committee in relation to the ETS are clearly pointing out that there's quite a lot of concern from business. Now I think we need to make sure that in the way that we draft that legislation that we can put in place something that actually works, because if we're simply going to draft ETC legislation which sends a message to New Zealand businesses that look this is not a good place to do business that you should go over to Australia or go to some other part of the world we will see a loss of jobs and we will see an exodus of businesses. I'm confident we can get that right, I do think we have to pay particular attention to what's happening in Australia, I don’t think we should get ourselves in a massive competitive disadvantage.

NEVIL And have you got a timeframe on that? Do you think that legislation could be passed before the election?

JOHN In part that will probably be driven by the government, we're certainly going through those submissions very carefully and we're working very carefully on that process. If it occurs before the election we just want to make sure that that emissions trading system reflects what will actually work because one thing I am sure of is if we end up passing an emissions trading system which effectively has as a by-product that a whole set of rules which are not sustainable even if in the first flush they're doing the right thing for the environment, politicians will not stay the course, because if they don’t the pressure can become enormous on them and obviously if you start losing a lot of jobs and your economy is highly uncompetitive then that’s of great concern, so we just need to get that right, I'm confident we can.

RAWDON Can I just bring this back to assets sales on a sort of wider basis. You’ve stated very clearly today that first term no state assets sold off at all. If these priorities have changed from the National Party what's been the response from your core National supporters?

JOHN Well I think they agree with us, which is over the next seven eight nine years whatever timeframe you want to put on it, we need to lift productivity, we need to narrow that wage gap between New Zealand and Australia. When I go out and talk to business which I do on a regular basis, the number one issue that they face is retention and recruitment of staff, we're losing 79,000 people a year, 40 odd thousand people a year to Australia – why – because that wage gap is widening between New Zealand and Australia and the only way we can narrow that wage gap and lift after tax wages and conditions is have a decent programme of personal tax cuts and increase productivity. Now look we can sit around all we like if we want and worry about a potential partial float of a quarter of solid energy as we did in the 2005 campaign, but that represents 2% of the Crown's SOE balance sheet, in other words if you float a quarter it's a half a percent of the Crown's balance sheet, that is not going to make the New Zealand economy go faster and if we don’t make it go faster in a more productive way, in a way that can lift wages and opportunities we'll continue to lose New Zealanders and that’s just not sustainable.

COLIN ESPINER – Christchurch Press
Mr Key the Prime Minister addressed the Labour Party's annual congress, the election congress yesterday and one of the things she said was that asset sales were a defining issue for Labour, and a defining issue for the election, you’ve just essentially inoculated that, was that your intention?

JOHN Yes, or not our intention to inoculate, it's our intention to have a position which is clear and precise, I just don’t want us to spend a whole lot of time skirting round the edges of something that won't ultimately make the New Zealand economy go a lot faster, we're not back in 1984. If you go back and look at the motivations of asset sales 15, 20 years ago there was a sound case for them, we were highly indebted as a nation, those assets performed very badly, they were a big drag on the economy, we're not indebted, net debt in New Zealand is positive. Michael Cullen is quite wrong, New Zealand does not have a debt problem, they have a growth problem.

COLIN Sure, but you're also avoiding skirting around the issue of asset sales where you're gonna get clobbered by Labour, and they were warming up, they’ve been warming up on this one for weeks and you’ve essentially ripped the rug from under them haven’t you?

JOHN Well I'm not really that bothered about what the Labour Party thinks and what the Labour Party's trying to do when they spend their life in a pretty incoherent plan from what I can see, but I don’t think they actually have a plan for where they want to go, they seem to get their focus groups and their polling out and that decides what their next policy is. They're about buying an election, we're about building a long term future for New Zealand.

COLIN Okay so you’ve essentially inoculated that it's no longer going to be a defining issue if National has anything to do with it, of course the other thing that Ms Clark mentioned was that only a Labour government could guarantee New Zealanders Working for Families, 20 hours free early childhood education and Kiwisaver. Now National's still out on those three issues, we haven’t yet heard what you're planning to do, will you inoculate those issues too?

JOHN Well let's get a few facts right. Let's take 20 hours free. The first thing is we support early childhood education, all the academic evidence shows you that that’s very important, that three and four year olds are in the early childhood education they're better prepared and better balanced and ready to go into school and make the most of those formative years. Our argument has always been and will continue to be, it's not free. I go round my electorate and around the country, I go to a lot of early childhood facilities who are part of the programme and they tell me up front this is a subsidy, so our argument has always been not that the policy was wrong of wanting to provide early childhood education but that they misled the people of New Zealand.

COLIN So you'll keep it but you'll change the name?

JOHN There may be some changes, there's also some people that miss out, I'm quite keen to ensure that we get that right. I mean to take an example where is one area that you would most want to focus on early childhood education, I would argue with you in the lower socio economic groups, go to South Auckland, I was discussing the very issue with Len Brown the Mayor of Manukau just last week, he is still very concerned about the number of young Maori and Pacific Island children who are not enrolled in early childhood education, so let's focus on some areas where people are missing out.

COLIN And Working for Families?

JOHN Well Working for Families, as I said I think in my National Conference speech last year, New Zealanders won't be worse off under National, so at the top end do I think it's correct that we should have a Working for Families programme that says if someone earns $142,000 a year they're still eligible for Working for Families, I'd rather deliver for those higher income earners through taxes as opposed to a government sort of programme, but quite clearly for the vast bulk of people they’ll continue to get Working for Families, and I think we just should get the record straight, we introduced child tax credits, you know they may have put the name Working for Families on it, but it was National that actually introduced it, and the reason is for lower income families they absolutely need more money to make ends meet and in fact you can't do it through tax cuts because you can't cut their taxes enough.

RAWDON What about middle income families who are also finding it difficult to make ends meet with the cost of petrol rise and the cost of groceries rising, I mean you know a lot of people I think who maybe even getting $80,000 through the door are on an annual basis, and obviously are way outside Working for Families, are still now finding it difficult to make ends meet.

JOHN That’s right, and middle income New Zealand has been completely ignored, they are the kind of lost group and cohort if you like under a Labour government, they have been hammered over the last eight or nine years. We we're quoting some research to Michael Cullen this week or some media reports that the average household is now out about $1000 a month by the time their interest rates which have doubled under a Labour government, their costs of going to fill up their car at the petrol pump, when you go and fill up your car and spend $120 and still go down to the supermarket checkout and make ends meet and I think they are people who are under an awful lot of stress and particularly in more expensive areas like Auckland where they’ve got tremendous mortgages, their interest rates have doubled, and rightfully so they are up in arms and they deserve and will under a National government get a much better deal.

RAWDON Through tax cuts probably.

NEVIL Mr Key you're talking about a lot of price increases that really are beyond the control of any government around the world at the moment with commodity prices, but how are you going to structure the return of tax, the over taxation I'd call it, to people who are at the level at which the tax cuts in, cos that would get rid of Working for Families in a large degree wouldn’t it, rather than – you’ve ruled out reducing the higher margin one.

JOHN I think just before we take Michael Cullen off the hook about he's not responsible for the increase in food prices and the increase in petrol prices, I think we've got to acknowledge that the single biggest costs that most people face is the increase in their mortgage or their rent as a result of interest rates going up and he has absolutely gotta take some responsibility there, not all, but quite clearly he's had advice in numerous years which he's chosen to ignore that if he continued to spend at the rate he did that both interest rates would rise and stay higher for longer. In terms of the way we structure our tax cut plan we're gonna have to wait and see that, but what I can tell you is we're trying to focus on a number of things. One, making sure that we've got – we're making a difference to New Zealanders, if you're gonna give them $5 a week it's not going to make a difference, secondly, that we've actually got a programme which puts in place the right incentives and thirdly that the structure of the tax plan is done in such a way that it's got efficiency, because there's been a lot of inefficiency in the tax system in recent times.

COLIN Can I just pick up on one other thing you mentioned Mr Key to do with education, and you said a slightly higher level of funding for independent schools. Can you give us some indication of how much higher and would that come off the budget for state schools?

JOHN Well it certainly won't come off the budget for state schools there's no question about that, education's a big spend, I mean in overall number it's nine billion dollars or of that magnitude, currently the cap is 40 million dollars and I think there's a strong argument for saying that can increase – look I'm not gonna put a number on it today but maybe it's 30 million you know that sort of range I don’t know the exact number.

COLIN So you're pretty much doubling it.

JOHN There'll be some increase and the reason for it is this, the way the cap currently works it's an entirely elitist policy, it says if I send my child to a private school every time a new independent school starts or more pupils enrol at those schools the level of subsidy goes down that means for better off New Zealanders who are less price affected and more inelastic in their thinking if you like they continue to pay those fees, but for a lot of middle income New Zealanders who really would value independent schooling they're locked out of the process and that’s a well known fact. Our children go to independent schools but when I look at the friends of our children they don’t come from well off households, they in fact come from middle New Zealand where those families have either got another parent working or they're going without a holiday or they're going without some other expenditure because they value education, and I simply want to deliver a system that says in the bounds of a very large spend we say to them look you are entitled to hold the view that you want to value that in your life and give your child a choice and we will support you in your actions to do that.

COLIN But aren’t you essentially undermining the state's education system, I mean you're essentially saying, well in your own case as you say you send your own children to independent schools, I mean aren’t you essentially saying we think that independent schools are better than the state system.

JOHN No, we believe in choice, and far from undermining the system actually when you send your child to an independent school that is truly one thing where you're completely taking the cost away from the Crown, and unlike health where you may have private health insurance and wander off and have some elective surgery, ultimately if you require you know tertiary sort of healthcare services, you're in a car accident then the state will actually still be required to pick up that cost. In education you're truly taking the cost off the state. Look we believe in choice and freedom, it's the very argument that Guyon was putting to us, what's different, well about us we don’t think the state's the sole solution, we're not intimidated nor are we frightened by the fact that we think there's a variety of ways that services can be provided to New Zealanders.

COLIN Have you made a decision on bulk funding yet?

JOHN I think it's unlikely that bulk funding will be part of our programme in 08 and it's just – yeah we've looked at it pretty carefully, we do want to try and deliver a system which gives more flexibility to schooling, but I think you know the issue around bulk funding is a bit of a kind of a 1990's argument versus 21st sort of century perspective that we want to take. Again I've been round a lot of schools in the last 18 months since I've been the leader, I've asked a whole lot of teachers and principals and while the feedback is mixed those that were previously bulk funded actually like the system, in the end it's also about where you set bulk funding to ensure that there are no losers and that can be very expensive so some flexibility in a slightly higher trust less regulatory model can work and we're playing round with some ideas on that.

RAWDON Mr Key can I just ask you about Bill English's budget you mentioned this when you were talking to Guyon just now. You're committed to effectively outbidding Labour's tax cuts.

JOHN Well I don’t think we should say committed, all I said was it's highly unlikely that Labour is gonna out tax cut National, I mean partly because their record indicates that they’ve had nine years of wanting to cut taxes and the only tax cut they’ve ever had they cancelled, so maybe they will have a rush of blood to the head and decide this is their big priority, but you know I think it's unlikely.

RAWDON So your tax cuts may actually be smaller than Labour's?

JOHN Oh look I think it's extremely unlikely and certainly this is not about what we deliver in one particular day, this is about an ongoing programme and we will be committed to an ongoing programme of personal tax cuts, Labour quite simply are not.

RAWDON But you mention this budget of Bill English's when are we going to see that?

JOHN Well what I did when I was Finance Spokesman in 2005 was I delivered a set of fiscals, an alternative budget if you like, that spelt out the spending track, that spelt out the debt track, that spelt out where an area's key area is like health and education the future spending opportunities you know would be. I would expect Bill to do the same. If you go back in 1999 and look at what Michael Cullen produced it was a pretty flimsy document compared to what we produced, we did that the day before we did our tax cut plan in the 05 election, I think it's strongly backed up that our tax cut programme was affordable and you'll see the same from Bill English.

RAWDON Will that probably include also where you'll be capping bureaucrats, I mean this is obviously one of the main areas of revenue which you're looking at to free up government spending? Will the budget go as far as that?

JOHN What it will do is it'll build in what we anticipate those savings to be which we've anticipated around about half a billion dollars over a three year period, that's because Labour's track has been to increase roughly about 4000 bureaucrats a term and that costs you know a fair bit of cash, so by not hiring those additional core state servants we've got more money in the future to put in other priorities, which is front line services and tax cuts, so it'll certainly build those numbers in. Ultimately you know we're in opposition, we'd like to get into government, if we're in government then we'll work in constructive and I think a sensible way with the various chief executives, with the ministers, to look and see you know what we think is working, what is not.

RAWDON Great, Mr Key, thank you very much for your time this morning.

ENDS

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