JOHN KEY interviewed by PAUL HOLMES

PAUL Prime Minister John Key got into Christchurch yesterday afternoon to check out the damage and to show solidarity with his old home town. He flew home again last night, and is with us on Q+A this morning, thank you for coming in.

How big is this in Canterbury?

JOHN KEY - Prime Minister

Well I think it's very big, I mean you can see the superficial damage as we survey the city this morning as we did yesterday afternoon. But the reality is that a lot of homeowners will over time find damage that they're not expecting at the moment. There'll be problems that can't present themselves visibly underground and there's a major rebuild job here in Christchurch. Added to that the feelings of emotion and you know real distress actually from a lot of the Christchurch residents, particularly older people living on their own, terrified of what took place.

PAUL Well exactly, we're used to seeing hundreds and hundreds of people crammed into emergency centres such as New Orleans, thousands, and it doesn't really touch us, and we see 200 Christchurch people in that emergency centre and it really comes home to us last night. When Bob Parker yesterday was talking about there's probably not a home, we're probably not gonna find a home untouched, or undamaged. That means it's a bit of a sleeper of a problem isn't it, from every point of view?

JOHN Yeah absolutely. I mean the interesting thing with the welfare centres that have been established, they were the home for about 250 people last night. But the reality is that thousands of people didn't stay in their home last night, they went to family and friends and the community really gathered around people. But when you go to that financial issue, an what we're hearing from EQC is they expect claims from at least 100,000 homes, potentially more. They're saying a bill of a billion dollars, maybe more. This is the single biggest claim on EQC since the scheme was established. So it is a major impact on both that scheme, but ultimately there's all the other costs, those that are uninsured, costs on the central government, costs on local government, costs on businesses.

PAUL Was that you using the figure yesterday, did I hear it, two billion dollars possible cost of this?

JOHN Well that was Treasury. Interesting enough actually, if you go all the way back to 1994, G&S the CRI established some models which alongside Treasury they've been working on now for the last 16 years refining them. It's a little incredible to believe you can plug and play these numbers and get a sensible answer but apparently you can, and they're initially saying maybe a couple of billion dollars but we really don't know, and as you say it's going to present itself over a period of time.

PAUL Because it was also the week last week as we just discussed earlier in the programme, the 1.7 billion dollars injection of capital bailing out the debenture holders. So this is perhaps another one to two billion dollars which is going to go into Canterbury. I suppose in a way that presents immense opportunities all around for Canterbury? I mean a stimulus package by its own right.

JOHN When you think about the stimulus package from the taxcuts, that's 4.3 billion and spread over a year, and some of it clawed back through GST, this is a big amount. I think it's worth noting that South Canterbury only get - the 1.7 is a very deceiving number. There's a lot of assets there that will be sold, and ultimately the cost to the taxpayer will be considerably less than that. Now that doesn't ease the pain, but I think it's worth putting a bit of perspective around the overall costs. And it's also worth noting that the government actually has earned revenue off the retail deposit guarantee scheme and the wholesale deposit guarantee scheme. Now ironically from arguably the wrong people the commercial banks have paid it and not the finance companies, but nevertheless net cost to the taxpayers is considerably less than the numbers touted in the media.

PAUL How much though, can you give us a number of on that? So 1.7 paid out, how much coming back?

JOHN Well the provision we have in the books is 900 million, and Treasury is saying you don't need to change that provision. In fact they think overall it'll be about 800 million in totality.

PAUL Cost?

JOHN Yes, but then take off the fees that you're getting from the other side, you know it's a much much smaller number.

PAUL But then you add the two billion in, or possibly the two billion. I mean have you got that money, can we afford that. I know the South Canterbury money was set aside.

JOHN Yes in the case of EQC, so the Earthquake Commission has enormous funds, 15 billion dollars, largely invested offshore very logically, because of course if there is an earthquake you don't want those funds invested in the country that's affected. They have about six billion in cash. So this is well and truly affordable from that perspective. The real issue actually will come not so much to those people, because they're covered to the first 100,000 and beyond that from their private insurance. It's the five or ten percent of people that don't have insurance that have said look I'll risk it, and in fact I met a couple yesterday in Christchurch who said look our insurance policy ran out four weeks ago. And that's the moral hazard for the government, because on the one hand if we pay everybody out, why would people take insurance. On the other hand you're gonna have people with real hardship and deprivation, and it's getting that balancing act right. It's not going to be easy.

PAUL Impressions of what you saw when you went to Christchurch yesterday?

JOHN It felt like the scene off a movie set. I mean I heard Simon Dallow saying we're just waiting for the tumbleweed to roll down Manchester Street. When I went in there, there was a building that was ablaze. We saw amazing scenes. Someone had gone with a fluoro can, and just written 'condemned no go' on the buildings. You know the whole facades had just collapsed into the street, and it is an absolute miracle that - if this had happened five hours earlier or five hours later frankly there would have been carnage in terms of loss of human life.

PAUL So it surprised you the extent, the size of it?

JOHN Yeah I mean the downtown centre - but even when you moved out to places like Bexley and the likes, the roads were just ripped apart. I saw a church completely broken in half, and then there's houses where they've been taken off their foundation, they were in fact wedged into the ground at an angle like 30 degrees, and that's what you can see. It's what's bubbling below the surface, the liquification as you were saying is just a manifestation of water pouring out from these water mains that have burst.

PAUL Liquification's an amazing phenomenon isn't it?

JOHN Yeah it is. It's a bit like when you go to the beach I guess and rub your hand on the sand, eventually water appears.

PAUL The Mayor and the local authorities, how did you see things being handled?

JOHN Well personally I thought both did an outstanding job. Bob Parker was clearly in control but very focused on what was going on, and the local people I thought did an extremely good job. Now there'll always be some criticism of Civil Defence and there's a little bit of it in the paper today. I actually reject that, I think there's a sequence of events. The Director of Civil Defence John Hamilton, can't be placed in the city that's going to be subject say to an earthquake cos you don't know what's happening. So the first port of call is always individual responsibility, people understanding and knowing what to do, and then things do kick in. You don't declare a civil emergency in day one, or in hour one, you have to work your way through, and what I saw yesterday in that Civil Defence Headquarters in Christchurch, that have been locked into Wellington, was I think every contingency covered.

PAUL Well maybe so. But I wondered about the length of time it took. It was five hours or six hours before a state of emergency was declared. Earthquake 4.33 - 4.35 - state of emergency declared just before 10.30. And when I spoke to the Civil Defence Minister I think on radio at quarter past nine, he said no water's fine in Christchurch, all the water's on. In fact ten minutes later I'm told by Christchurch people there's no water. So there's kind of a disconnect, there's kind of dysfunction. So who was in charge, was Wellington, was Christchurch? Who ultimately decides what's gonna happen in that particular situation.

JOHN Yes, so the local area is in charge, and it's ultimately up to the Mayor.

PAUL So you don't think they were too slow?

JOHN No I don't think so. In fact look all the reports I got, and things that I saw yesterday was the example of the system working exactly as it's designed. I think people understood what to do. Everyone from my own sister down realised you rush for a door frame, and then Therese.

PAUL By the way why did your sister text you when there was an earthquake going on and not phone you?

JOHN Yes well the first word actually rhymed with truck, but I won't bother saying it on TV, and then the rest of it carried on from there. When I rang here on the phone she said it wasn't like those earthquakes we had when we were kids and the glass sort of rattled off the end of the dining room table, this was a major.

PAUL So the word that rhymed with truck gave you an idea of the seriousness of this earthquake that was happening in Christchurch?

JOHN Yes well she's doesn't normally text me at 4.41 in the morning.

PAUL No no no exactly, no that's Mr Williams.

JOHN Some people do but she doesn't. She's fond of me but not that fond of me.

PAUL Some of the worst damage - public infrastructure. I mean one only had to look at the footpaths yesterday, twisted around and then the lawn next to the footpaths and the roads crooked and God knows what, and then the railway line. You can see that's 50 grand even that little bit there just fixing.

JOHN Absolutely. I mean when we looked at the roads we just saw bits of it where the road had been separated. I mean it's not a matter of a quick patch up job, they're gonna have to rip those up, and I think it's what you can't see, and it's what hasn't been identified. I mean there's some reports that an awful lot more houses than we're estimating will have some damage. Now you know when you think about it, just the settling process, what happens next, the cracking. And we've gotta check every school before kids go back to school. I mean something like AMI Stadium, Bob Parker said to me yesterday they have a good look through, it's all okay. But let's be honest, we've gotta go and do a thorough search of that stadium well and truly before the Rugby World Cup.

PAUL Let me just go back to the state of emergency thing, because it came up again four years ago whether there was or was not that damn tsunami coming at us in the middle of the night. No one knew how to tell anyone a tsunami was coming. Therese made the point earlier to me that her radio had gone, you've gotta have a radio with batteries. But say people in the house don't have a radio with batteries, the electricity's gone, the tele's not working, and you've gone through this. Imagine yesterday if fire had swept through Christchurch, if there was death and mayhem and you had to declare a state of emergency. How the hell do you let people know? What happened to the old Fire Brigade siren going?

JOHN Well that would kick into place if required. So you've got to remember the first port of call is you the individual taking responsibility and understanding what to do.

PAUL Making plans?

JOHN Actually the people that I met on the streets of Christchurch, and there were a lot of people we met, the first thing they said to me was we went and grabbed the kids. I mean that parental care and love for their children was evidently on display. The second point is when we declare a state of emergency, matters in terms of what happens next in terms of dispatching the Army, or the way that things are funded, or the various rules that apply. But to be perfectly frank the major defence mechanism, whether it's Police, whether it's Fire, those people weren't hanging around waiting for Christchurch to declare a regional civil defence emergency.

PAUL They were getting amongst it. Just quickly, a word on claims. Is it easy for people to make their claims, is that a straightforward procedure?

JOHN Hopefully will be. So Christchurch is going to be established as centre, the Earthquake Commission's going to have people on the ground in Christchurch. Cabinet will have to consider a whole range of things, but not the least of them being will probably put in place a Civil Defence Coordinator, someone that can actually oversee this process. Because it won't be a short term thing. The Civil Defence Minister will give us an update at Cabinet tomorrow. I intend to take a group of relevant ministers back to Christchurch. My guess is sort of after question time on Tuesday, and we'll have again a bit of a chance to debrief. But some of these things will take a period of time for us to work our way through. But yes we've gotta make it easy for homeowners.

PAUL Yes exactly, and I suppose people will be hoping they get full compensation, but that will all have to be worked out. I spose when you look at the next few months in Canterbury and particularly in Christchurch there are employment opportunities too?

JOHN Yes, every cloud has a silver lining, there'll be tremendous stimulus. My concern actually funny enough now is the next 24 to 48 hours. We know that there's gale force winds coming, we know that there's substantial rain coming, and we know a lot of homes will have been affected in terms of weather tightness. And the other thing is, while power has largely been reconnected, water issues and sanitation issues present real risk. So we've gotta work very quickly now. There's been an outpouring of support from everyone from Federated Farmers and Fonterra, right through to Watercare here in Auckland.

PAUL Emergency money, Cabinet might have to allocate a bit of emergency dough?

JOHN They will. The law is quite prescriptive at the moment, so literally it's 100,000 dollars without reference to Cabinet, and 500,000 through another act, not the Civil Defence Act, but in reality we're masters of our own destiny, and we need to get out there and we will have to, when we know how we're can help basically appropriate some cash.

PAUL Bob Parker was suggesting you might have made the military available from Monday. If the weather gets nasty today and the integrity of some buildings becomes in question, might they have to come in sooner?

JOHN Well they're available now. So what's happened is that the Police Commander, I spoke to the local Police Commander, he said to me look the 80 Police Officers we dispatched from Auckland, will cover their issued in the very short term, but people get tired and they're working very long hours. So my guess is the military will be there as and when required. If it's this morning it'll be this morning, but it may well be Monday is the indication.

PAUL And please send my compliments to your sister, and tell her that she should be engaged as a very effective early warning system for disasters.

JOHN Exactly, she was the early warning device, in fact if you told her she was going to be on the payroll responsible for New Zealand, she would happily fulfil that role I'm sure.

ends

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