SIMON It's been a mixed week for the government, Wednesday marked 965 days since the signing of its confidence and supply agreement with United Future, the longest period of stable government yet seen under MMP, but the government's performance was under fire in the House with Police Minister George Hawkins facing a barrage of Opposition questions about Police performance or lack of it, and the government's seemingly forced into a backdown on scholarship exams. Last night I spoke with the Prime Minister at the close of day one of the Labour Party Congress, we talked about the week that was and what we can expect at a time when economic indicators suggest that the honeymoon may be over.

Prime Minister a lot of debate this week over policing and it seems to be one of two possibilities, are they under resourced or are they incompetent.

HELEN I don’t think it's necessarily a question of either or. I think we're in election years, you've got opposition parties pretty desperate to find something to throw around, it's also just before the Budget when everyone is competing for resources, so it's probably not surprising that the Police have ended up as some kind of political football.

SIMON Are they adequately funded?

HELEN Well we put tremendously large amount of money into the Police it's up just on 20% over the last five budgets in spending, so I don’t know that money's the issue. I think the problem is that despite the fact that the boys and girls in blue do a wonderful job, 99.999% of the time you’re going to find instances where things didn’t go completely right.

SIMON It does seem to be though this week that Greg O'Connor of the Police Association has emphasised the fact that it's the ratio of Police to population that’s out of kilter with the rest of the developed world, that we have a ratio of one policemen more than 550 people and that’s way more than any other country.

HELEN Well I don’t know the figures that he's referring to, what I know is that there's been a very substantial budget increase over five years and that the Police do an overwhelmingly fantastically good job but there will be times when things don’t go right.

SIMON So you’re saying that your record is better than National's but would you be prepared to actually give more Police, put more Police into the force?

HELEN Well we have the total numbers are up quite considerably as well as the money being up so no doubt we will keep increasing the numbers, we'll keep increasing the money but no one could put their hand on their heart and say that means there'll never be anything going wrong.

SIMON Day after day of course Police Minister George Hawkins in the House has been getting a hammering on this very issue, how much longer should a man who's been subjected to what you've described as schoolyard bullying, taking advantage of a speech impediment be expected to sustain this type of attack?

HELEN It has been a pretty concerted attack and those who are attacking know it's on issues where there's a clear separation between the operational responsibilities of the Commissioner and the policy and funding responsibilities of the Minister, and so it's not entirely fair pool but then politics often isn't and he's stood up to that.

SIMON Other ministers have been given more support, why doesn’t he get more support now?

HELEN Oh George Hawkins has had a lot of support believe me and he's been under very very intense pressure with Opposition attacks but he can stand there and say look I'm the Minister we've got huge increases in funding, I'm the Ministers under whose watch the crime rate has got down to the lowest level in 23 years. If I were George Hawkins I'd be feeling pretty chipper about it.

SIMON He could have more support from someone like John Tamihere he's been vindicated and he's got time on his hands.

HELEN Well I'm not short of volunteers to enter the cabinet I can assure you.

SIMON Education, the government's had to back down this week over the scholarship, are there any more changes to come?

HELEN Well firstly there's no backdown from the government on scholarship as far as I'm concerned. What we did was have an exam that was not competently implemented by the New Zealand Qualifications Authority. What the government did was then set up a group of prominent educators and assessment experts and we said to them you give us the best advice you can about how to get the scholarship exam right. They came back with a report which was very very good, I have read it carefully, we have adopted their recommendations and I believe that puts scholarship on the right track.

SIMON But you've had to change your tune haven't you? They’ve emphasised that we need ranking. You need to be able to rank the top students.

HELEN That is not problem for me in the scholarship exam. They have given us a very credible pathway forward.

SIMON But it means that we're not longer exclusively committed to a standards based assessment only doesn’t it?

HELEN Well scholarship you have to pick your very top students, and the way the scholarship exam was administered for last year it ended up with hugely varying pass rates which simply aren’t acceptable and I think make a mockery of scholarship.

SIMON What about the plans for education savings accounts. We've had the reports suggesting that over the week Dr Cullen changed his tune over their viability several times, what's happening there?

HELEN I couldn't believe my eyes when I looked at the front page of the Herald on Monday which basically said Helen Clark's got egg all over her face what she announced at the Labour Party Conference isn't gonna happen. Well that was completely untrue, we are working on a scheme which will support families to save for their children's tertiary education and I think people are going to find it a way that they can look ahead and put a bit of money aside.

SIMON But it was viable, then it wasn’t viable, now it's viable again.

HELEN No no no, it is viable, there will be a scheme.

SIMON So when is the scheme, when are we gonna hear it?

HELEN Well we've been focusing on three kinds of savings this year of policy. One is around retirement savings, the second is around home ownership savings and the third is around tertiary. We're still working on the details but you are definitely going to hear more this year.

SIMON Well another question then you mentioned the home ownership scheme to assist people into their first homes, when again?

HELEN I expect that with home ownership we'll see some details in the Budget, I expect that with retirement savings we'll see some details in the Budget, the tertiary one may not be as far advanced as that, but we're certainly working very very hard on the details.

SIMON Recent economic indicators, very very gloomy, how concerned are you by news now that our current account deficit is running at something like 6.4% of GDP, that’s a level akin to the US where economists say they're in trouble.

HELEN Of course the US also had huge budget deficits, we have rung strong operating surpluses out of which we then invest back into important areas including the New Zealand Superannuation Fund. I'm actually an optimist about the New Zealand economy and I think it turned the corner some time ago, we've had five years of pretty good growth, actually it's been so good that the Reserve Bank has sought to slow it down a little because it doesn’t believe that year on year at the moment New Zealand can grow at 3.7% without running into some bottlenecks, but our challenge is to lift the skills levels, lift the innovation levels, lift productivity and make sure it can keep roaring along.

SIMON You’re talking about the growth but in fact of course over the last three quarters growth has been in major decline the December quarter of the GDP growth was 0.4% this must be worrying.

HELEN Well I look at the whole year's figures.

SIMON The last three quarters have all gone down, 0.9, 0.6, 0.4.

HELEN Yes but most predictions are for quite a strong March quarter but it's not by accident that they’ve gone down the Reserve Bank Governor has clearly set out to slow the economy because he's been concerned about the pace it's been running. Now if there were to be another quarter like the December or September ones I think that would be a pretty clear signal to Alan Bollard and he would be saying that yes I've got the policy settings right and probably tai-ho for a while but look the New Zealand economy has been an incredible success story, it's getting notice from all round the world, fantastic supplement in the Financial Times, just in the last week or so, we've done extremely well and we can do better.

SIMON For the last three weeks the last month in particular this has not been so good, we've had falling commodity prices, the dollar's been falling, the sharemarket's now falling, isn't this a recipe for trouble?

HELEN I don’t believe so, and actually there's probably every exporter listening to us right now would say thank heaven's the tops coming off the dollar. It's been high and that’s really strained the export sector, but we have so much positive that’s going for us that nobody's talking about New Zealand going into depression, what they're talking about is coming of a peak of 4.8% growth, that’s an incredible achievement.

SIMON And you’re confident that it'll be like this all the way through to the end of the year?

HELEN Well what I'm confident of is that New Zealand's got up a head of steam, that there are things happening in our economy that we wouldn’t have dreamed of as possible and we can now see the real potential we have is incredibly skilled and innovative people to do better for the long term.

SIMON So you think we can defy the predictions globally that the world economy is going to be in a downturn?

HELEN Well we've been running ahead of other developed countries for most of the time we've been in government, that’s why our unemployment is lower than anywhere else in the western world, so I feel that New Zealand has a freshness and energy about its economy and about its people which is going to hold us up pretty well.

SIMON But we do have this current account deficit problem, we do have this growth slowing down the last few quarters, we've got the falling commodity prices, the dollar, the sharemarket, does all this mean we can now expect a tightening of the belt in May's budget as opposed to the spending budget that we were all anticipating?

HELEN Well what you can absolutely guarantee is that this Labour led government with Helen Clark and Michael Cullen at the helm isn't going to throw money around that it doesn’t have, in fact we're simply amazed at the voodoo economics coming out of right wing parties which believe you could right now chuck vast amounts of tax cuts on the present monetary situation, that would be ridiculous and would certainly prompt more interest rate rises, so we'll be running a pretty steady ship and I think what we've had credit for as a government is being very responsible but also visionary and competent economic managers.

SIMON Well you say that but of course the reports today it seems that there's plenty of money for state sector jobs, state sector wages, they're growing by two to three million dollars per day and have been for the last five years under your government, how bloated is the civil service?

HELEN Well we've had to rebuild capacity in the civil service, remember when we came into government the National Party had been looking at cutting back the Police Force, the Children and Young Persons Service was in disarray. We had Probation Officers under so much pressure that some terrible mistakes were made with criminals. You know it was a very very bad scene. Yes we have had to rebuild and I don’t have the slightest bit of embarrassment about that, I know we can do a better job for the public than we were able to with those depleted resources.

SIMON So you've spent all that money on the civil sector, you've spent almost two billion dollars on sub degree tertiary courses that weren't even completed so none of that money could have been available for tax cuts?

HELEN Well I'm after value for money in the tertiary sector believe me and I've identified quite a few targets for that and appointed Trevor Mallard to really make sure that we can get the money where it ought to go, but in terms of what you’re saying about spending money on the public service, this is teachers, this is nurses, this is your children and young persons workers, it's your extra Police, it's your Probation Officers, it's the people who run the basic public infrastructure of New Zealand.

SIMON An extra two to three million dollars per day for five years.

HELEN Hey you’re throwing those figures around, what I'm telling you is that we have put immensely more teachers into our schools, we've had a wage settlement with nurses which has got their heads up and feeling very very positive about their job, and we were having trouble maintaining nurses in our system, we have to have a credible public service. All of us could be sick, any of us could be worried about our kids' education, we need to know that the government cares enough about health and education to spend what it has to get it right.

SIMON Alright then regardless though you've got problems with Police, you've got problems with education and arguably you've got problems with the economy, what good news have you got for the Labour Congress tomorrow?

HELEN What good news? I think most people will come having seen the front page of Friday's Herald and be thinking you know full marks for a good job done. But look all of these issues are challenges, I find that as we're coming towards the end of the second term in government we're starting to deal with new issues which we couldn't have dealt with before because they couldn't come on the horizon. We came in when unemployment was 6.8% now it's 3.6%, what does that mean? We're suddenly short of skilled workers, because the economy's going so well we've got more pressure on the transport and energy infrastructure so we have to deal with that. Running out of workers, we have to you know look at the skilled migration, we have so many exciting issues to deal with and I think there's going to be a buzz around that conference as they plan to take Labour into the third term.

SIMON I've been quoting bad news at you, you've been quoting the good news back at me, I mean regardless of the spin what effects are all these indicators having on your decision when to call the election?

HELEN Well they're not having any particular effect on it, what I've been concentrating on is firstly making sure our party gets it's organisation shape, gets the candidates picked, the list selection done which has happened, we've got our election year congress right now, we're running through to budget on the 19th of May, you know we're in pretty good shape to fight an election, fund raising's gone well and I think you’re going to see a pretty buoyant conference but I'll have a message for the conference and that is that complacency and arrogance are the two diseases of politics and I don’t want to hear about either of them at this conference.

SIMON Alright well mentioning complacency and arrogance how confident are you of support in the Maori seats?

HELEN Well I'm actually feeling pretty positive about the Maori electorates, I think we've got a good story to tell, I think we've got a good set of policies to project, you know going back five years there was a tremendous amount of Maori unemployment we've knocked it back 44%, we can still to better but people can see the change, they can see it for the first time.

SIMON Why then if you are so confident of the Maori seats did Mike Williams earlier tonight say that you’re going to be spending five times as much campaigning in those seats than you did in 2002?

HELEN Well clearly there's a challenge coming in those seats which wasn’t there last time, those seats were seats where Labour was extremely secure. Now when someone who's been in the bosom of the Labour Party breaks away to paddle her own waka of course you’re going to come under challenge, but we are going to meet that challenge head on.

SIMON Prime Minister thank you very much for making the time to appear on Agenda.

PANELLISTS

TODD NIALL, Radio New Zealand &

BERNARD HICKEY, Editor Business Day

SIMON Welcome back, we're going to talk with our panellists now Bernard Hickey and Todd Niall about what the Prime Minister had to say, but I'm most interested in her style, relentlessly upbeat is this the beginning of the election campaign?

TODD Well I don’t know whether it's the start of the campaign, congresses are always that opportunity to put the best face on everything and certainly she's doing that you know in spades, that’s the big discussion though, is that the start of the campaign or is it just that normal congress ra-ra-ra.

BERNARD It does have the feel though that she's practising her patter, these are the things I'm going to push, we've got the economy in a great position, unemployment's down to 3.6%, she's lining up her arguments to send them out once their campaigns are up and running, and she's right to line them up now because to be honest this economy has been living on borrowed time for at least a year or so. We've got a double whammy of delayed effect about to hit fixed rate in mortgages now in use, so those interest rate hikes haven't hit yet, and also because many exporters have used hedging a lot, so the currency's been up but no one's really been hurting that will really thump in at the end of this year and through next year, she needs to get her good story about the economy out now before things get…

SIMON Yes it's a very selected choice and a very selected interpretation on economic indicators isn't it Todd?

TODD Everything Bernard says is right, I'm still at this point not convinced that that’s grounds for going for July, rather than September because I mean most of the things that are happening have been in forecasts so it's not as if there's a sudden turn for the worse that nobody has expected.

SIMON You talk about forecasts though and we mentioned this among ourselves before, the forecast for the December quarter growth on GDP you were saying Bernard was 1.1%, it came in at 0.4% how much is she relying as she said on the next quarter's economic data to be positive as has been forecast?

BERNARD The thing is she knows what the Treasury is forecasting out next year and very interesting that Michael Cullen came out last week and said well actually we may not get to that debt to GDP target as quickly as possible and I think he knows that the growth forecast has been lowered and that they need to get in early.

TODD And the interesting thing, I mean there's economics and there's politics and the economic picture might be clear but for this government to go July rather than September it has to have you know a material belief that there's gonna be a benefit to do that and the question will be if it decides to make a dash for the line in July for example is it exposed to a greater risk because all the opposition can say hey hey look folks they're going for it because things are going to turn bad or does it look better to live out its belief in itself as a competent manager to think it can get through to September with nothing to hide politically.

BERNARD See that’s the thing though, for this government the economy's the central achievement of what they’ve done, there's been lots of skirmishes around Maori issues, education, but they can always come back and say hey your house prices are up, unemployment is down, we're all doing great, and also they can throw in an interest rate scare if the other lot get in as well.

SIMON What happens though if the next round of economic indicators are negative again do you rush to the polls or do you try and correct, what do they do?

TODD Well my view is that a rush if it was a rush would have too many political risks because you'd be seen to suddenly not believing in the message that you've been putting out about yourself as a competent manager, and yet all the forecasts are for things to cool off markedly next year, but you know we're talking about this year, we're talking about people's experiences with their own lives between July and September so is that really gonna change that much and at the moment I'm not sure that the signals are that that is.

BERNARD That’s why this interview this morning was so interesting I think, and her comments to the congress, she is setting things up for the election, if she can go now and say well I've been saying these things for the last two months you know of course we'll have an election, it doesn’t look like it's a surprise, she also can quite legitimately say it's exactly three years since the last election, perfectly reasonable for me to go now, it's not early I'm not rushing, there's no panic.

SIMON Let's just look at some of the other things too, George Hawkins, doing a good job, doesn’t need support, had plenty of support. Has he?

TODD Well I don’t know that he has but I mean clearly from his place on the list I think there are some fairly you know presumably the Opposition will be making the most of that as long as he's there, I think his demotion on the list is probably a signal that after the next election he's not going to be there so maybe that’s a short term problem.

SIMON And also the Budget too, you know several of these things have been indicated and signalled over the last month or two but now the indicators are down again where is the assistance, the housing assistance programme, how do you think this will impact on the Budget?

BERNARD Well I think they’ve done a lot of their spending already working for families just came out April 1, no coincidence I'm sure that the tax hike on petrol came out on the same day so that you have some good news and bad news and I think the Budget is not going to be perhaps the spend up some people were expecting because I think they know and to their credit they’ve pitched themselves as being responsible managers and I don’t think it's going to be the huge spend up that some people. Have talked about.

SIMON Gentlemen, thank you very much.

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