Sunday23rd August 2009: Q+A’s Guyon Espiner interviews Prime Minister, John Key.

Points of interest:
- Looking at formalised reporting to help track efficacy of ‘anti-smacking’ legislation and will consider changes to police and CYF operations in order to give reassurance to parents.
- Closer relationship with Australia in areas such as streamlining securities, competition and tax legislation, mutual recognition of professions, portability of pension plans
- Prime Minister says the idea of a common currency with Australia has merits but doesn’t think it will happen.
- Prime Minister believes the raising of investment threshold from Australia is required to create opportunities for New Zealanders who would otherwise leave.
- ANZAC contingent should be a long term commitment, but is “largely symbolic”.

The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can be seen on tvnz.co.nz at,
http://tvnz.co.nz/q-and-a-news

JOHN KEY interviewed by GUYON ESPINER
CLOSER RELATIONSHIP WITH AUSTRALIA

GUYON Well Prime Minister thanks very much for joining us on Q+A. The purpose of this visit and the stated drive between the two countries is to bring the nations closer together. I guess if you look at it New Zealanders will have different opinions about whether we're too close or not close enough, and I want to traverse some of those areas today, starting with the economy. The stated goal of the single economic market is to make it as easy for a business who's based in Auckland to do business in Sydney as it would for them to do business say in Dunedin. What more do we need to do to make that happen?

JOHN KEY – Prime Minister
Well you're right, we need to have a seamless integration with Australia insomuch that it will make like easier for New Zealand businesses, and I think if you are to understand the motivation of that is to take a step back and say, if New Zealand's going to become wealthier we need to sell more to the world, this is a combined market of 26 million people as opposed to four million, but also secondly one of the reasons why New Zealand companies struggle I think when they go overseas is they start exporting at a very early stage in their development, very much in their infancy, and so if you get that point where you're sending off a small New Zealand business into say the Chinese market or the Japanese market or the United States, that is a big call for them early on, so if they can build some capabilities some strengths and some muscle power in the combined market then they're better.

GUYON So that's a stepping stone in that respect, but what do we need to do to make sure it is just as easy to do business on both sides of the Tasman.

JOHN KEY There's quite a number of things, around securities legislation we need to progress that, so again you can raise say for instance issue of prospectus in New Zealand, raise capital in the Australian markets. I think secondly tax legislation, there are some interesting issues around the imputation and streaming of those franking credits across the Tasman so that you have for instance an Australian shareholding base in a New Zealand company, they get those benefits without that, you're seeing New Zealand companies move across the Taxman. Mutual recognition in certain professions can make a lot of sense again, so that you have a qualification in New Zealand recognised in Australia and vice versa. Portability of retirement pension plans is another good example of that, maybe around competition policy making sure that the Commerce Commission in New Zealand is pretty much in step with what's happening in Australia with the ACCC, and I think there are more and more steps that we can make. So it's really about how we have what feels like a combined market while retaining our independence of course.

GUYON The most significant to have a combined market surely would be a common currency. Now you were reported in 2007 as saying that this was an idea worth exploring. Do you still believe that?

JOHN KEY Well I've always been of the view that it's actually a mildly sensible idea, I know there are some people that completely reject it, there's been quite a lot of academic research done in this area, Arthur Grimes himself wrote a very good paper a number of years ago.

GUYON Why is it a sensible idea?

JOHN KEY Well because if you look at the two markets, firstly we have a 100 billion dollars worth of combined investment, 80 billion dollars coming from Australia, so on one level if you had the same currency you'd eliminate all of those currency issues when it comes to investment, and I think you would see a greater pool of Australian funds coming into New Zealand and vice versa, you wouldn’t have New Zealand companies worrying about that risk. So that’s one thing, the second thing is it's around about quarter of all of our exports, so again you'd have what would look like a domestic market, and see that small New Zealand business start selling into Australia, they’ve gotta worry at the moment about different accounting risks, different legal risks, different interest rate risks, different currency risks, and those currency movements can make the huge difference between whether they're successful or not. Now the one negative on all of this, and I've got to accept that, and it's a strongly held view from the Reserve Bank Governor, is ultimately this is the adoption of the Australian dollar if it went ahead, is political implications of that around whether people would walk around with those notes and coins, you could have New Zealand notes and coins but the real issue is you lose control of monetary policy.

GUYON But that hasn’t worried Europe, you’ve got the whole European Union which spent most of the 20th century fighting each other, they’ve got it, they haven't worried about independent monetary policy, is that really such a negative for New Zealand?

JOHN KEY Well it's that one off sort of safety valve, it's the thing that can happen for instance let's say we had a foot and mouth outbreak in New Zealand, so something quite distinct and specific to New Zealand but we were part of this Anzac dollar or Australian dollar, what would happen in New Zealand is the currency would fall probably by, I don’t know 20, 30, 40%, it would be a very substantial and rapid depreciation. Now that would be the safety valve if you like that would then get our economy on a much more competitive footing. Now if you take Ireland, they are part of the Euro at the moment, their currency probably does need to depreciate but because it's the Euro it can't. So that’s the argument put up against it.

GUYON But that’s a real aberration, that’s at an extreme. You seem to be saying which I think is quite interesting and quite significant that barring that you think it's a good idea?

JOHN KEY Well that’s my point, I think it's not a completely barmy idea, it's not one of those things you can say well this is just madness, I'm saying I think there are benefits and pros and cons, but do I think it will happen, the honest answer is no.

GUYON Did it come up at the joint cabinet meeting that you had?

JOHN KEY It didn’t, and it didn’t at the Australian New Zealand Leadership Forum as far as I understand it, and that’s because it has actually been on the agenda in the past and it's been parked because people have believed it's been too difficult, but look as you say it's worked in Europe, it's an interesting idea. One thing I can say to you is, if you have a look at the similarities between Australia and New Zealand in the last decade, I don’t think there's a time where we've raised interest rates when they’ve cut them in Australia or vice versa.

GUYON So is it something you will pursue, or is it just simply politically too hard?

JOHN KEY I think it's something that’s parked in reality, there's not a huge appetite at this point to progress it, but it's certainly an interesting academic idea.

GUYON What about one of the areas where we actually have moved to greater integration and that is on investment protocol. You’ve raised a threshold at which New Zealand vets foreign investment from Australia, Australia can essentially now buy a company or an asset worth about half a billion dollars before getting any scrutiny. Australia has 87 billion dollars invested in New Zealand, they own a lot of major assets, why would we want them to own more of New Zealand?

JOHN KEY Well firstly I think if you go back and look at the cases that have been rejected by the Overseas Investment Office, the answer is you struggle to find any. In the last 25 years there's been a very high level of acceptance as a general rule, so I think lifting that threshold for Australia recognising the special and unique nature of our relationship makes sense. That capital coming in that can very much be the capital that funds growth for New Zealand businesses. Now obviously of course there's always a risk that a company gets bored and it gets transferred and taken out of the market, but very often the case has been that that investment's come into New Zealand, it's stayed in New Zealand, it's built a base.

GUYON So we shouldn’t worry about this, because New Zealanders will, some New Zealanders will worry that Australia is going to buy more and more of our companies, and if you make it easier for them to do that then that will happen. They will also argue that the closer that we get economically and the easier it is for New Zealand businesses to do business in Australia, the more of them are going to go there, I mean does that not worry you?

JOHN KEY Well firstly let's look at the counter factual, what's the alternative if we don’t have foreign investment in New Zealand. At the moment capital starved companies in New Zealand would be the answer, there's not that big savings pool in New Zealand. Now over time would I like to see New Zealanders save more, ultimately invest more in those productive assets and own a bigger stake in their future, absolutely. But if you take that capital away and that flow of capital I think that weakens the New Zealand economy dramatically. Secondly if we take a step back, as you quite rightly point out, 87 billion dollars worth of Australian investment in New Zealand, has it make us poorer or weaker, I'd say to you no, it knocks around our current account because you’ve got dividends coming out, and I think New Zealanders do want to own a big stake of their future, but we also want to have a big future, and that means companies that are successful, that are vibrant, that are integrated with good people, good technology, good transfer of information.

GUYON Sure, but if you go back to the election campaign, I mean you stood in the stadium in Wellington and said – and lamented really the fact that perhaps 40,000 New Zealanders leave to Australia every year, and here you are making it easier for New Zealanders and New Zealand companies to go there. I mean this is all one way traffic isn't it, we have one New Zealander in every ten living in Australia, why would we want more to go there?

JOHN KEY Well let's understand what we're doing, we're giving Australian companies the opportunity to invest in New Zealand, and very often they're going to get the Overseas Investment Office approval whether we have a cap or not, this is just the point at which they have to be referred to that office, but why are they leaving, why are New Zealanders leaving, the answer is because they don’t see the opportunities that will pay them the income to stay in New Zealand. We are poorer in every state in Australia on per capita income. That’s not because we don’t have the opportunities, it's because we don’t have companies that I think are investing the level of capital with the level of access, with probably the level of ambition that we need. Now we need to bring capital in, wherever it comes from, as you say domestically would be great, but I don’t think we should reject foreign capital coming in, if it's building opportunities for our young people and paying us more, and we've gotta get more productive. If we can deliver those opportunities and better incomes, matched with our lifestyle, New Zealanders are going to stay and it's not a matter of being afraid of foreign investment, we should be very afraid of an Australian economy which is so much more powerful than ours if we become a giant educational facility for Australia, and that’s certainly not my ambition for New Zealand.

GUYON Okay let's look at another area where the countries have been getting closer and that is Defence and Security. We've talked about a common ANZAC defence force, or at least a contingent rather than a wholesale merger. Now you’ve said that we won't lose our independence under this scenario, but what say we get into an Iraq sort of situation where they want to send troops and we don’t, I mean who would decide on the deployment?

JOHN KEY Well in that case an ANZAC contingent wouldn’t be deployed. Now we haven't worked through with the Chief of Defence Forces, you know the personnel, how this would be structured, how long it will last. My view is if you're gonna set it up it should be a long term commitment, not about one deployment to one particular location. In some part it is largely symbolic. I don’t think there's any getting away from that, we have relatively speaking a large defence capability and Australia has an even much larger one, no one's arguing that this ANZAC contingent's gonna get anywhere near threatening in you know the size of those specific operations.

GUYON But do you worry that we will lose our independence? I mean you said that we would maintain our foreign policy independence, and I know you're not talking about a wholesale merger, but isn't there a risk that the world will see it that way. The world sees New Zealand very differently from it sees Australia, it sees us as independent and nuclear free. There are advantages to that surely. Don’t you risk putting that at risk?

JOHN KEY Well I think there are advantages and we're absolutely maintaining the anti nuclear legislation, and we're maintaining an independent foreign policy, but we happen to work very collaboratively with Australia at the moment. When I was in Canberra this week, you know just to lay a wreath at the New Zealand memorial there, 80 odd New Zealand military personnel who are operating here in Canberra at the moment, turned up to that particular display, and there were many many others working there, but the question is can we have a better relationship and a more effective relationship if you like, working together potentially and using an ANZAC contingent if you like, just to tie in that relationship even tighter. Now let's take the Solomon Islands, we're both intimately involved with the Ramsay operation, East Timor the same thing, Tonga when we saw the Princess Ashika's sinking very recently, isn't there an argument there that we're playing a leadership roll together in the Pacific, again looking and saying where one has a strength and maybe another one can have a priority, using those combined strengths makes sense, I think it does.

GUYON In the remaining few minutes we've got I'd like to turn to some issues that you will face on your return home to New Zealand. New Zealanders overwhelmingly while they didn’t turn out in big numbers they overwhelmingly voted their dissatisfaction with the anti smacking laws. You’ve talked about some moves that you can make to actually give greater comfort to parents that they won't be criminalised for a light smack to their children, what sort of things are you talking about there?

JOHN KEY Well the first thing I'd say is I take the message from the referendum that New Zealand parents do not want to see themselves criminalised for lightly smacking a child, and I agree and support their view there, I think it would be totally inappropriate for a New Zealand parent to be prosecuted for lightly smacking a child. Now I think there are some things that we can potentially do that don’t involve a law change but would involve ensuring that their level of comfort that the law is working is maintained.

GUYON What sort of things are you talking about?

JOHN KEY Well formalised reporting is the sort of argument specifically done in a way where people can track whether the law is working or not, because one thing that’s interesting, there's been 202 investigations if you like, or complaints made that might involve the area of this light smacking somewhere along the lines, either smacking or where Section 59 might have been used as a defence, there's been 13 prosecutions in that’s area. There's been nearly 83,000 investigations in the same time period for domestic violence and family violence, so it's worth putting in perspective how small this thing is, but we've made it quite clear if the law doesn’t work we're going to change it. Now unless New Zealand parents can be sure that the law is working, how do they know we're going to honour our commitment?

GUYON So you're talking about formalised reporting so that parents would have access to that, or New Zealanders would have access to track how these complaints are followed up by the Police, is that what you're talking about?

JOHN KEY Quite specifically that’s one option and then there are other options that I'll detail a bit more on my return, that might involve changes in the way that the Police operate and maybe the way that Child Youth and Family operate. Now there's a degree of independence that obviously the Police have, and so they would have to be willing to step up and make those changes, and I'd need to invite them to do that, but there are possible changes that could occur there that I think can give New Zealand parents a higher degree of comfort that the law as it's passed, with the intent that I think parliament has that good parents shouldn’t be criminalised for lightly smacking a child, is being adhered to.

GUYON So it stops short though does it Prime Minister of actually issuing an instruction to the Police?

JOHN KEY Well I can't instruct them because of their independence, but I can certainly lay out what my preferences are.

GUYON What are they?

JOHN KEY Well I'm not gonna go through those today, I've really gotta take my cabinet colleagues through that, but in the last wee while I've been giving some thought to this, and you know I think it's been very obvious what the result would be, little unsure about what the turnout would be.

GUYON But presumably it is to give you're indication and guidelines to the Police that they shouldn’t simply criminalise parents for a light smack?

JOHN KEY And making sure that they honour that. I mean I think it's important to understand, I've made a strong pledge to the New Zealand public that if the law doesn’t work I'll change it. I've also made a pledge to the New Zealand public that in a compromise I reached with Helen Clark, I believed that the law would be administered in a way that a good New Zealand parent should have no fear of being criminalised or taken to task by the Child Youth and Family or the Police. Now in honouring that commitment I need to give them safeguards to make sure that they can rely on that, and that’s what I'm going to propose.

GUYON Alright that’s pretty much all we've got time for, thank you very much Prime Minister for joining us.

ENDS

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