20th March 2011

John Key

Points of interest:

• PM hints at major cuts to May Budget to fund Christchurch re-build. Only education and health will be exempt

• GUYON Are you still going to spend $800 million more in the May Budget?

JOHN Well, I think the answer to that is no.

• Key stands by comments made before the Christchurch earthquake that our national debt was “unaffordable” and “holding the economy back”, despite last week’s decision to increase borrowing

• Borrowing the best funding option as a levy would be insufficient and “there’s no single either asset you could sell or expenditure that you could cut which would be great enough to actually fund the type of impact that the Christchurch is having on the books.”

• Government’s Christchurch emergency assistance package “will almost certainly be extended”, but may not be as generous

• Up to 5000 temporary homes to be built by government on safe public land in coming “months, certainly not years.”

• Central government will take the lead role in rebuilding Christchurch, as councils don’t have “capability and breadth”

• New ‘Department of Christchurch’ being considered, to be run by minister Gerry Brownlee

• PM not aware of any New Zealand sanctions against Lib ya, but we will follow UN lead

• Government will take a “close look” at $30m education deal with Libyan government, but doesn’t want to people to pay the price of sanctions

• Japanese earthquake “not necessarily always a negative thing from our perspective” as New Zealand food could become more prized

• Earthquake hasn’t changed government’s plan for welfare reform, although PM hints at short-term exemptions in Christchurch

Q + A
GUYON ESPINER INTERVIEWS JOHN KEY
GUYON Thank you, Prime Minister, for joining us. We appreciate your time.

JOHN KEY - PRIME MINISTER

Good morning.

GUYON Could we start with Libya? Does New Zealand support the air strikes against Colonel Gaddafi’s regime?

JOHN New Zealand does. It supports the UN Security Council resolution demanding the reduction and elimination of violence by the Libyan government against the people of Libya and also the no-fly zone across Libya, because, of course, Gaddafi is using his air space to attack his own people.

GUYON Several countries have imposed financial sanctions on Libya. Australia has imposed financial and travel sanctions on about 40 people associated with Gaddafi’s regime. Has New Zealand moved to impose any financial sanctions on Libya at all?

JOHN Yeah, not that I’m aware of. We continue to monitor that situation and look and see whether that’s a requirement. We are part of the international regime when it comes to sanctions, and those that come out of the United Nations - we follow those ones. And we’ve been looking at individual countries in recent times, so not that I’m aware of that’s been brought to my attention.

GUYON Because last year, your Education Minister, Anne Tolley, signed a $30 million deal with Libya’s Secretary for Education, allowing students to come from Libya to New Zealand. Some 300 are expected to take that up each year - a $30 million deal. Does that stand, or is that the sort of thing you’ll have to cancel?

JOHN Well, it’s the sort of thing we’ll have to take a close look at, but I think it’s important to understand that just because there is the regime, I mean, the people of Libya - they, I suspect, want their own freedom and their own future and their own opportunity. And the way to deliver that is through education, so coming to a country like New Zealand to receive that shouldn’t necessarily cut that capacity simply because we don’t agree with the actions of Colonel Gaddafi.

GUYON Will you need to look at this deal, though?

JOHN Look, that’s something the minister might want to go and consider who’s coming and why, but New Zealand’s got a large foreign-education service. It does a good job in that area, and as I say, we’re very conscious, actually, of the people of Libya. As we’re seeing in the Middle East where we’re seeing substantial change that is being driven, actually, by a very young population that actually wants to have a future, wants to have jobs and wants that opportunity, so we need to make sure that if we do make any moves there that we’re taking appropriate action. I wouldn’t want to comment on that without a closer look.

GUYON Let’s move to Japan. Obviously, huge devastation there and loss of life and obvious economic impacts as well. I mean, they are our fourth-largest trading partner, have a lot of tourists come to New Zealand. How significant is the economic impact going to be on New Zealand from this earthquake?

JOHN Well, there will clearly be some impact. I mean, it’s our fourth, I think, largest trading partner and the third-largest economy in the world. And as we can see, the situation is not only catastrophic in Japan; it’s complex as well. So that’s going to have quite an impact on the sorts of goods and services New Zealand exchanges with Japan. But having said that, as you are going to see in Christchurch, you’ve got a short-term effect where things close down, economic activity contracts very rapidly. But, actually, as you go through the rebuilding phase, and as we’ve seen, issues, for instance of food contamination, make food from New Zealand even more highly prized, so it’s not necessarily always a negative thing from our perspective.

GUYON On that aspect of food contamination - I mean, is there anything New Zealand needs to do to monitor what’s coming into the country from Japan?

JOHN Look, again, we don’t have any advice on that at this point. We tend to not bring in fresh fruit and those sorts of things from Japan. I’m sure all the appropriate advice will be taken. MAF will go and look at that situation. But largely it’s things like rice and the like that we bring in at this point. We haven’t had any advice that it’s an issue. I think they’re more concerned about local food that’s being produced and served up locally.

GUYON Can we move to Christchurch and the impacts of the earthquake there as we try to rebuild the city? People have been getting between $400 and $500 who have lost their jobs as a result of the earthquake. That was a six-week package, and I think runs out in about two weeks’ time. Will you extend it on the same grounds that it is now?

JOHN Well, I think it will almost certainly be extended. I mean, whether the criteria is slightly changed and narrowed - that’s something we need to get some advice on. We’re working our way through that, as you appreciate. There’s a number of aspects of the economic package, and this is just one part of that. I mean, if you think about what we’re trying to do there, the payments which primarily have gone to companies as a wage subsidy are an attempt to keep the relationship between the employer and the employee whole, if you like, while the employer works out what their position is.

GUYON So will that largely, though, continue on the same grounds, what, for another six weeks? I mean, how long are you going to need to provide that assistance?

JOHN Yeah, so the relevant ministers are working their way through that. I mean, it’s my expectation there will be an extension of the scheme. As I say, they may look at the margins. It was an extremely generous, essentially universal scheme, but I think the—

GUYON So you’ll tighten it up a little bit - that’s what you’re saying?

JOHN That may be the case, but, I mean, I think, actually, the really important point here is how do we get these companies back on a firmer footing. No one’s arguing that they can go back to where they were pre-February 22 in day one, but we need to start addressing some of those fundamental issues now. Business access to the CBD has been one, and we’re working our way through that as carefully as we can without, obviously, endangering those that might go into those buildings. Clearly, making sure that there’s access to capital, looking at how we can have mentors and advisors helping those businesses, temporary accommodation - all of those things are forming the part of a package that we’re looking at to support those businesses.

GUYON Temporary housing’s a big one. What plans have you got to bring in temporary housing as the colder weather approaches, especially?

JOHN Yes, temporary housing’s a big issue, because we know that there are a lot of people who will be displaced from their housing, and we know we need to provide housing for a workforce that’s likely to migrate down to Christchurch as well. On Friday an RFP went out - a request for a proposal - across all of the companies in the New Zealand that produce modular homes. We’re looking for up to about 2500 homes, which will likely be put on public land, so parks and the likes of the A & P showgrounds, for instance. So that housing will be used to temporarily accommodate people while they’re out of their initial home.

GUYON When will that housing be available?

JOHN Yeah, so we’re working on that to happen, as, you know, soon as we practically can.

GUYON What is the timeframe?

JOHN Months. Certainly not years. Months, but it takes some time to put that together. So we’re looking at firstly the capability, also looking at whether we might want to be in a position where we put some modular-type homes on a property where the land isn’t damaged, but the house is and it needs some work. And it’s also scaleable. We think potentially up to 5000 homes may be required on a temporary basis.

GUYON And what are we talking? I know you haven’t got an exact timeframe, but people will want to know when. Are we talking a couple of months?

JOHN Yeah. Look, as soon as we can practically bring that on stream now. Not all of that capability, not all 2500 homes will be able to be delivered on day one. Obviously, that builds up over time. But there is quite a lot of capability around the country, and we’re working with those building companies that can supply that for us. We’ve also got, as you’re aware, the campervans. We’ve got about 150 of those and another 300 on standby and potentially more. So they’re an immediate response for someone that’s had to move out of their home and where there isn’t, you know, some rental accommodation they can take up.

GUYON Can we look at the bigger picture of this, I mean, how we are going to rebuild for the longer term? You said this week that it’s clear that the current structure with the Earthquake Recovery Commission won’t be sufficient to address all the concerns that the government would have and isn’t the right vehicle to proceed. So what will the new structure be? How are we going to do this, and who’s going to do it?

JOHN Yeah, so the reality is the central government has to take a lead role here. Now, we’re going to work cooperatively with Christchurch, but I don’t think any council round in New Zealand has the capability and the breadth of bureaucratic support to do the sorts of things that we need to do in Christchurch over the next two, three, five years.

GUYON So it will be government-led?

JOHN It will be government-led.

GUYON And how will it work? Who will do it?

JOHN Yes, we’re in the final stages of putting that together. My expectation is that we won’t have an announcement this week. It’ll be the following week. But it’ll likely see the minister in charge, Gerry Brownlee, have a responsibility and have a department that can support him. Now, as part—

GUYON So a new department?

JOHN That’s possible.

GUYON A new government department would run it?

JOHN Well, there’s got to be a coordination of all of those resources that go into Christchurch. Now, we’ve got to work our way through that and obviously work very closely with the people of Christchurch.

GUYON Based in Christchurch, this department?

JOHN Well, let’s have a look over time.

GUYON And how do you include the people of Christchurch in that?

JOHN Yeah, well, it’s very important that they can feed into the planning process, and that’s really where their interest will be. They’ll obviously, I think, appreciate that, and, in fact, the feedback we’ve had from businesses, the feedback we’ve had from individuals on the ground and, in fact, from the council themselves is you need the full support of those various government departments that feed into Christchurch. Now, what the right vehicle for that is is something we’re working on, but ultimately it’s not possible for Christchurch to do what a normal city does over a course of its lifetime in a very short and truncated period of time.

GUYON OK, let’s look at the economics of this. You said on January 26, and I’ll quote you directly, ‘Borrowing $300 million a week is unaffordable and is holding the economy back.’ Now you’re going out there and borrowing $10 billion more. Presumably, if you’re true to your word, that’s unaffordable and will hold the country back.

JOHN Yeah, well, we stand by what we said at the start of the year, which is New Zealand’s external liabilities - the amount of the debt the country has - is too high, and it puts us at risk in terms of coping with future shocks.

GUYON So why are you borrowing 10 billion more?

JOHN Well, firstly, whether it’s ultimately 10 billion - I think the number was five billion that the Minister of Finance put out on Thursday. I think the important point to understand there is that partly that’s an accounting treatment of the way that all of the costs of the earthquake are taken—

GUYON But those complexities aside, he said clearly he’s going to borrow the money.

JOHN Yeah, and so—

GUYON So why did you do that when we can’t afford it, rather than put a levy on or to have some temporary tax rise for wealthy New Zealanders, say?

JOHN OK, so think about it in these terms. There’s, sort of, three ways you can deal with the situation. One is you can temporarily borrow the money and start the process, and we think that is the right thing to do because there’s no single either asset you could sell or expenditure that you could cut which would be great enough to actually fund the type of impact that the Christchurch is having on the books.

GUYON No, but you could’ve raised a levy on it.

JOHN Even that wouldn’t actually fund the $5 billion. It would over a period of time bring more revenue in. Now, the second option for the government is actually put on a levy, and that’s not our preferred option. There will be an increase in the EQC, but it’s not our preferred option, because, again, we believe that the rest of the economy’s starting to grow, but it is fragile and will snuff that out.

GUYON But it can’t have been unaffordable to be borrowing $300 million a week and now be affordable to borrow more than $300 million a week, can it?

JOHN No, we’re—

GUYON So it’s not affordable, is it?

JOHN Well, we agreed that as a long-term position, no, that’s not the desire of the government to be borrowing in the order of $15 billion a year - $300 million a week. But I think the third point is if you look at our budget expenditure, and this is really where the government’s response will come, that is that we were— the previous government spent about $2.8 billion a year. We cut that to 1.1 billion extra a year.

GUYON And then down to 800.

JOHN Down to 800.

GUYON Are you still going to spend $800 million more in the May Budget?

JOHN Well, I think the answer to that is no. What we are going to do is spend more on health and education. That may well be in the order of 600, 700, 800 million, but we are asking ministers and what they are working on is looking to reduce expenditure in other areas so that can be reprioritised to pay for the more in health and education we want and ultimately the Christchurch earthquake.

GUYON So this is a zero budget, then?

JOHN They’re your words, but certainly we’re taking a view that says—

GUYON Are they true words?

JOHN Well, you’ll have to wait and see on Budget day, but, I mean, the reality is, as you’ve just pointed out, there are very limited options to the government. We’ve inherited an earthquake. We now have to deal with that. The options are borrow more and sustain that position forever - not affordable; go out there and fundamentally put a big tax on people - well, again, that will have economic implications; or the third is cut our cloth to what we can actually afford. Now—

GUYON So, and sorry to belabour this, but it sounds as though you’re going to take the money from elsewhere to fund that 700 or 800 million.

JOHN Yeah, so what—

GUYON So that’s a yes?

JOHN Well, what we are going to do is look very carefully and say, ‘Is there expenditure that we think is not as important today in the situation New Zealand now finds itself?’ And the answer to that is, yes, there is expenditure that we can redirect to health and education.

GUYON Where will it come from? You’ve already talked about Working for Families.

JOHN Yeah, there’s a range.

GUYON What else?

JOHN Well, bluntly, every minister is going to have to look in their department and come back to the Finance Minister with a proposal.

GUYON So this hasn’t been done yet? You don’t have a list that you know about that you can’t tell us today?

JOHN Oh, look, there’s work happening, that’s for sure. So the ministers are working on that, and we’re getting not that far away from having to put the budget together, even though it’s in May. Budgets ultimately need to be settled by the middle of April, so we are working on that at the moment, but a group of ministers, myself and the various finance and associate ministers, ultimately always work through those proposals, refine them. Now, one of the important things I think we’ve done as a government is we’ve faced quite tough economic times the whole way through is to make sure that the vulnerable - those that rely very heavily on government services - are supported. And that’s going to remain as an important presser.

GUYON Well, let’s talk about that because we haven’t got a lot of time. The welfare reforms that you were looking at - does the Christchurch earthquake change in any way your thoughts on cracking down on welfare?

JOHN Look, I don’t think so, and there’ll obviously be a build-up in welfare in Christchurch in the short term, but obviously a very large economic stimulus, actually, over time as well. An enormous economic stimulus.

GUYON Sure, but they’re not necessarily going to have symmetry between them, are they, because, I mean, are you going to ask someone who’s on the DPB with a couple of preschool-aged kids in Christchurch to go out and look for work, or her DPB gets cut? Because that’s the tone of the Welfare Working Group report. Are you going to go ahead with that?

JOHN Well, I think we need to take a step back and, say, if you look at New Zealand, it has a number of structural issues it just simply has to front up to. One of those is on the economic front, where we need to rebalance to a more export-orientated productive economy where the Crown doesn’t crowd out the private sector. It’s equally true that both the structure of government and ultimately the structure of the welfare system need reform.

GUYON Well, that’s all very well in form, and they are long-term reforms, but can we have an answer for someone who may be in that situation, please, who’s on the DPB, got a couple of kids and is worried about this, and she’s in Christchurch and is going to be made to go out and look for work or face her benefit being cut?

JOHN Well, the government’s always been responsive when it comes to Christchurch. I mean, there were various different tests—

GUYON Are they going to be exempt from these things?

JOHN Look, in the short term we’ll be sensible about the position in Christchurch, but I think we need to take a step back and say we have 360,000 New Zealanders of working age on a benefit, 220,000 children, approximately, being brought in benefit-based households. We do not believe as a government, nor do I think the majority of New Zealanders believe, that they deliver the best social or economic outcomes for those families, for those individuals. So we do need that reform, and we need to do that sensibly. But, ultimately, New Zealand has to address that issue, as indeed it addresses other issues that are holding the country back.

GUYON All right, there we have to leave it. Thank you very much for your time this morning.

JOHN Thanks very much.

GUYON Appreciate it.

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