AGENDA
Presented by RAWDON CHRISTIE

RAWDON In two weeks time John Key will know whether he will get a chance to form the next government, but over the past few days the campaign that seemed as though it was only his to lose has tightened up and suddenly Mr Key has started to fight.  First he suggested Helen Clark could end up forming a five headed monster of a government, then yesterday he proposed giving cash handouts to those who might lose their jobs because of the world financial crisis.  His critics say this is typical of Mr Key, opportunistic and at times at odds with his party's small government individualistic basic philosophies.  So what is he really all about.  He's with Guyon Espiner.

GUYON Well John Key let's start with the assistance that you're talking about, some sort of package to help people who lose their jobs in this financial crisis, what are we dealing with here?

JOHN KEY – Leader, National
 Well we're dealing with three components parts of the economy Guyon, I mean the first is we've got a liquidity crisis here and we have to make sure that our banks can continue to fund themselves so that they can lend to New Zealand businesses and New Zealand home owners and that’s what the Wholesale and Retail Deposit Guarantee Scheme is about.  I understand that Michael Cullen's going to be detailing that next weekend and we'll be continuing to work with him on the details. The second thing is there is a much bigger issue about how to get the New Zealand economy going forward on the front foot and that’s is about growing, because everyone forgets this is not an economic crisis that’s just about liquidity, we've actually been going backwards on a relative basis prior to that, so we've got a plan for that and that’s everything from an Emissions Trading Scheme that’s well balanced to a Resource Management Act that’s reformed to less government to less bureaucracy and red tape, but there will be some people that we predict and the Reserve Bank predict will lose their job as a result of the economic slowdown, because there will be implications of this credit crisis without doubt on our real economy, that means people losing their job.

GUYON And what are you gonna do to help them?

JOHN Well we're proposing a series of initiatives, I'm not gonna detail them today but I will by next weekend and that is a series of initiatives to try and help some people who have liabilities and commitments who have lost their job and we are confident will get back into the labour markets over time, so to give them a bit of transitionary support if you like.

GUYON Are you talking about giving them a loan or are you talking about giving them actual cash assistance to help pay the mortgage or their other costs of living?

JOHN Well it may be a combination of types of things in that area, so it's specific and it'll be people that can't meet their liability would otherwise potentially default for instance on a loan that they might have or their mortgage as an example, but we're confident that they will get through this.

GUYON This sounds like a potentially pretty expensive initiative, what sort of money are you talking about throwing at this?

JOHN Yeah well you'll have to see the details as I say by next weekend, but we are confident we can fund it, we're confident we have a sense at least of the numbers but it's going to be very important I think to put some confidence into those New Zealanders.  Now inevitably there are very sad stories as a result of an economic slowdown, and my argument would be this government over the last nine years has actually failed, it's failed to really ensure that New Zealanders are in a stronger economic position with higher wages.  If they'd cut taxes when we promoted it in 2005 New Zealanders would have been better off.

GUYON You talked this week about a five headed monster when talking about the prospect of a Labour led government, do you think that international investors and perhaps even credit rating agencies are going to be worried about the prospect of a multi party coalition under Labour?

JOHN Well I think what everyone will do, and you can take your choice whether it's an international credit rating agency or ultimately a New Zealand investor or a foreign investor is they will look at what the makeup of a government is and what's its objectives and intentions are and no one should be under any illusion, and a Labour Greens government will not be pro economic growth, that is not their agenda.

GUYON Will there be a reaction from the international money markets the international credit rating agencies to that  prospect do you think?

JOHN Well I don’t know but what I do know is that people will look and say is New Zealand going to be growing, is it going to have the initiatives to go forward.  Now let's take the Emissions Trading Scheme as a good example, we already know New Zealand Steel's put a billion dollar's worth of investment on hold for the next decade because it can't be sure it can operate under a New Zealand Emissions Trading Scheme, National's going to change that Emissions Trading Scheme to be more balanced with economic growth and environmental responsibilities.  I'd strongly argue with you a Greens Labour government will also be changing the Emissions Trading Scheme but completely the other way, is that gonna make investors invest in New Zealand?  I'm not convinced.

GUYON Are you seeking to govern alone now?

JOHN Well look we've always had the view that we want to seek the maximum party vote that we can.  I can't tell you and I don’t think anyone – we spend an interesting sort of dance if you like you know divvying up the seats and the votes and all this sort of stuff before the election's even been held, my job and the job of the National Party is to go out there and talk to New Zealanders about the issues that matter.

GUYON Let's talk about some of the economic policies that you have launched in this campaign including getting the superfund to increase its New Zealand holding from what 23% to at least 40%.  Are you prepared to accept a low return on that fund as a result of that policy?

JOHN Well I don’t argue it would be a lower return….

GUYON But surely it must be, why would the guardians of the fund, why would they have only put 20 odd percent in which seems like quite a lot in New Zealand equity.

JOHN Well firstly let's have a look at it, you know Sovereign Wealth Funds which is essentially what the New Zealand superfund is, they often have a big home bias, I mean the Future Fund in Australia while not by legislation is required to invest in Australia has the bulk of its assets, Temasek Holdings in Singapore is another good example.

GUYON Is it analogous to call it a sovereign wealth fund though?

JOHN Well I think it is, I mean we're investing in our future, I mean if you want to look at New Zealand Superannuation there are a couple of things we need to do to ensure we're in the strongest position, one is obviously to pre-fund that liability of the ageing of the population, but the second is to have the strongest economy we can.

GUYON But aren’t you politicising this, wasn’t that the idea, I mean aren’t you just opening the door for a politician, perhaps not yourself but someone further down the track, to buy off a coalition partner with investing in a certain thing or to fund some pet projects, aren’t you actually politicising this?

JOHN Well not under a National government I mean we're saying that the guardians of the superfund will have absolute authority to invest as they see fit.

GUYON As long as they put 40% of that in New Zealand.

JOHN That’s right and I make no apologies for that, if you think about the sort of asset classes that they could invest in.  I mean the commercial paper market, at the moment it's closed anyway to New Zealand local government and to New Zealand businesses, now obviously at some point when the credit markets calm down it will open up, but if you think about things like equities in New Zealand taking maybe a shareholding stake in something like Fonterra if it decides to float some of its capital, into some of the public private partnerships that might come up, whether it's you know a toll road or ultra fast Broadband.

GUYON Yes but these are massively political areas aren’t they?

JOHN Well yes, but they’ve gotta make the decision themselves that they think it's appropriate.  What I'm saying to you is any sovereign based fund like that will use some sort of benchmark to determine how much should be in New Zealand and how much should be offshore, their home country bias is what's it's called.  Now actually technically speaking if you wanted to apply the international standard less than 1% of the New Zealand superfund would be invested in New Zealand, so currently the guardians have determined that to be 23.9%.  I don’t think we should be so purest that we think for a country that is capital starved we're not prepared to invest in our future.

GUYON Underpinning all this is the financial crisis, just about everywhere we look in everything we mention.  People have talked about the greed and the corruption as part of the problem here, do you think that this whole thing has shown up a fundamental flaw with capitalism or is this just a rare historic event?

JOHN I think it shows that you know the financial markets need a certain degree of regulation about them, and there's been attempts at that.  If you look at when long term capital with a big hedge fund blew up in 1999 I think it was from memory, what happened then was the Americans passed some legislation called the Sarbanes Oxley Legislation, and that was aimed at basically controlling some of the excesses in the financial markets but what you’ve seen over the last – particularly the last decade – is as the investment banks in particular and the banking sector have struggled to make the margins that they previously made because of transparency in the financial markets partly I think through the internet and the likes, the investment banks have gone into riskier products and taking greater levels of risk in the belief that they could manage that.  Now what effectively happened is banking's always about leverage anyway and you always have a situation where a bank has a certain amount of capital and lends you know it's a certain degree.  What's gone wrong here is I think the regulators haven’t realised the full extent of all of these exposures.

GUYON But in the human dimension it's about greed isn't it, I mean is greed good?

JOHN Well markets are always driven by fear and greed, that’s the underlying factor of what drives financial markets.

GUYON Is that a good thing?

JOHN Well greed of itself isn't a good thing but there's nothing wrong with the capitalism and the recognition that the financial markets can be the oil or the lubricant for growing bigger economy, I mean at the back end of it lots of products have come out, they’ve allowed companies to manage their exposures a lot better, but what we've seen is excesses and I think you’ve partly seen it in the hedge fund….

GUYON But you would have seen it better than anyone, I mean you’ve worked in that world, could you see what was gonna happen?

JOHN Well when I went back in 2007 I said in an article that was written about me in 2008 in the New Zealand Herald that I was quite shocked actually by how large the risk had grown if you like and how extreme some of the risk had become, because you know it's easy when you look at markets, when they're stable and they're calm, it's a vastly different proposition when you look at you know what's happening beyond that, now the banks have historically used a number of techniques for managing that but one is called VAR Value at Risk and we used to measure when I was at Merrill what is the value at risk, in other words if there's a 1% movement in the markets what does that mean for the capital of the banks and their ability to manage it.  What we've seen in recent times is these amazing moves and the interrelationship of all these things is causing an implosion.  Now our banks have a different situation.  We don’t have an exposure to those products in the same way, we don’t have the counterparty exposure, but what we do have is a private sector in New Zealand that’s borrowed an enormous amount of capital and the bulk of it offshore and that’s a challenging issue for us.

GUYON Well let's look for a minute at the world that you worked in, let's take an example.  I mean when you were working at BT, it's December the 14th 1988, you know Roger Douglas is going to be sacked that afternoon, the story will be familiar to you.  You knew that that would send the Kiwi dollar down, so you went out and you sold a massive amount of New Zealand dollars, the rest of the world catches on, the value of the Kiwi drops, then you buy it back, you made by your own account between one and three million for BT that day.

JOHN Yeah.

GUYON But that’s destructive for importers and exporters who make real things in New Zealand isn't it?

JOHN Well I don’t know, firstly one thing I can tell you from spending 20 years in the financial markets is no one's bigger than the market, and I've seen a lot of traders who believed that they were, and quite honestly they’ve had their comeuppance, because what ends up happening is the market often reacts differently to the way you think, and governments and regulators always have the ability to change things.  Now you see that for instance in Singapore where they’ve gone in and you know when they haven’t liked people being involved in their economy they’ve changed the rules around them.  So what I'd say to you is – I actually think on balance the financial markets provide the lubricant and they provide the ability for companies and our markets to function a lot more easily.  I mean just take a simple example.  We're a country that doesn’t save a lot, were a country that’s borrowed a lot internationally, now you can argue the merits of that but without access to that capital internationally, without the swaps markets without the ability to get that income – that capital into New Zealand our economy would be much smaller.  So you can't have it both ways you’ve got to accept sometimes the financial markets make money out of things but as a general rule I think they’ve assisted commerce, but there's been extremes and excesses in the last decade and unfortunately the world's paying a price for that.

GUYON  Your opponents' chief attack on you is that you flip flop all the time and they're right to some degree aren’t they, I mean Air New Zealand, KiwiBank, Working for Families, four weeks annual leave, there are so many major public policy positions that you’ve simply changed your mind on, and the worry is are you a politician without a set of beliefs to actually draw on to make your decisions.

JOHN Well no in answer to the first question, and then there's some broad and firm principles that the party has believed in since it was established in 1936 and so do I, whether they are fundamentally smaller government or you know a belief that New Zealanders should be able to get ahead under their own steam, the freedom and enterprise of the centre right party, but it's also true that our party's history as in Labour's history there are times where the party's been dominated by excesses and I don’t believe the National Party's been at its finest when it's been in those excesses, I actually think it's been at its finest when it's been the true centre right party.  Secondly when it comes to flip flops okay, look sometimes you have to accept when you're in opposition it's your job to fight strongly for something that you don’t think is working well, but you also sometimes have to accept that it become embedded in people's lifestyles, but it's also not true to say that we don’t share concerns in certain areas.  Let's take student loans, yes we did fight against zero percent student loans because we believed that would end up you know in a situation where people would borrow more and they'd have that debt for longer.  Actually they have borrowed more, but we also had a policy back in 2005 that our pundits want to forget about which is we had tax deductibility for interest on mortgage, we had a tax scheme that .. at the vast bulk of people tax cut programme – the vast bulk of people having a lower liability under National, so it isn't as if that was an idea that was original the Labour Party and we all of a sudden thought about it.

GUYON Okay something else that’s come up in this campaign and over the several months is your position on the Springbok Tour, now I accept that you had no real position on that but is there a public issue either here or abroad that you felt strongly about?

JOHN Well there are always issues.

GUYON But are there ones that have stood out?

JOHN I mean there are things in my history I mean I remember Mururoa Atoll and the fact that you know it was wrong, that you're testing nuclear bombs in our backyard and our neighbourhood.

GUYON That made you angry?

JOHN Yeah of course there are things like that, but my point is simply, my focus is on what's going to happen in the next 27 days, 27 weeks, 27 months, I can spend my life relitigating things that happened a long time ago, I'm not sure it's really gonna help things.  I mean it actually speaks to something completely different.  Helen Clark and I are from a very different generation, she actually grew up immersed in the Vietnam War and the Springbok Tour, I didn’t.

GUYON Just before I leave it a couple of process things I guess really, you’ve ruled Winston Peters out of government, you said as a cabinet minister you couldn’t trust him, didn’t have the character, we've seen Lockwood Smith make some remarks this week that a lot of people found racist and offensive, is he worthy of a cabinet position in your government?

JOHN Well I'm not going to debate who's in the cabinet and who's out at this point, we're two weeks away from the general election, we haven’t won, you know let's go out there and see if we become the next government, if we do I'll take a lot of factors into consideration like I did with Winston Peters.  I mean in the end we just couldn’t reconcile his position with that of Owen Glen's we couldn’t reconcile the way he handled that, so there were a lot of factors that went in there.

GUYON Okay, Rob Muldoon had Finance, David Lange had Education, Jenny Shipley had Women's Affairs, and Helen Clark has taken the Arts and Culture portfolio, would you take a portfolio if you became Prime Minister?

JOHN It's my intention to.

GUYON What would that be?

JOHN Well at this point I've decided I probably wouldn’t say that up front but I have got an intention to take a portfolio, it's not a large portfolio.

GUYON Well okay, look I mean I guess for the purposes of debate it's no great secret, my interest would be to consider taking the Tourism portfolio, and the reason for that is I think there are three aspects of New Zealand that have huge potential, I mean obviously agriculture, you know the production of food is going to be where there's a huge competitive advantage.

GUYON  So you'd be the Tourism Minister under a National led government?

JOHN That’s my thought process at this point, and the reason for that is I think it's a massive industry for New Zealand where we can do an awful lot better, it's potentially our largest export earner and it's about branding New Zealand.

GUYON Okay thanks very much, back to you Rawdon.

RAWDON Thanks very much for that Guyon.  Now it's the turn for myself and the panel to put some questions to Mr Key.  Start with you John.

JOHN ROUGHAN – New Zealand Herald
 Long before there was a crisis and even a budget blowout in this country you were talking about expanding the whole New Zealand economy to a higher level, your aim was to get it sort of operating, you thought it could operate at a higher level.  Listening to you now say that you'd like to take Tourism in a National government, is that the sort of area that you think New Zealand can be a lot more successful in, a lot bigger in and what other areas have you got in mind?

JOHN John, I think you ought to take one step back and say let's just look at the fundamentals of the New Zealand economy, I mean this is a country which is losing you know record numbers of people now, where productivity's halved, where inflation and domestic non tradable inflation has been quite high for at least the last five years.  This is a country where our wages on a relative basis have not been rising as fast as Australia and our growth rate on a per capita basis is about 2%, so quite frankly if we don’t do better then we're not going to deliver those opportunities.  So do I think tourism is an opportunity yes I personally subscribe to the view that says a country succeeds like a business succeeds where it has a competitive advantage, in my view it's food production, tourism and some niche areas which I know we sometimes disagree on this, but I personally think rolling ultra fast Broadband fibre to the home can actually remove the tyranny of distance and make a really compelling case why people would want to have service based industries here in New Zealand intersecting with the rest of the world.

RAWDON Can I quickly pick up on the cash handouts again, I know you spoke with Guyon about the fact you're putting together something for later in the week, but how many people do you think could lose their jobs as a result of this economic crisis?

JOHN Well it's a little bit different to know but I mean the Reserve Bank have said the unemployment rate's likely to rise above 5%, we're currently at 3.9%.  I think you have to take a step back and say the next three years and we hope it's a National government, but whoever's in government it will be very challenging, because at the moment everyone's focused on how you shore up the credit crisis and the credit crunch, but once that’s been and gone we all need to understand what that means, that is a banking system that lends less liberally, that is a world where over the last decade where you saw very low levels of inflation globally, high levels of savings out of Asia and the capacity for people to borrow against a rising housing market, those things are changing and in my view that’s going to have an impact on the real economy and there will be people who'll be casualties of that and lost their job, so whether it's 5% or 5½% I don’t know.

RAWDON  But even if it's 3 or 5%, 5 or 5½%, in 87 it was 11%, so I mean is it a big deal, I mean at his stage and surely you must have a good idea of what it's going to cost you if you're putting together a plan?

JOHN Oh yeah we have an idea of the costings and we're working our way through than in more detail at the end of the week.

JOHN ROUGHAN  Can I just break in and say I'm not clear from those comments whether a National government's response to the recession would be like Labour's to expand public works, bring forward projects, spend and get people employed and working, or listening to your plans for debt relief for the unemployed whether a National response would be to retrench a bit and get the economy through faster that way.

JOHN Yeah well the rescue package for individuals is solely focused on a reality that some people will lose their jobs as a result of the downturn of the economy, and we've got a couple of options, we either try and assist them in meeting their liabilities because we're confident in the medium term they’ll get back into a job, or we just simply say they're high and dry.  Now the banks already work with individuals that have a problem with their loans, they don’t call them in on day one as a general rule for very good reason, that they can see this is a medium term problem, but actually the much much bigger issue is the one you’ve talked about, okay how do we get New Zealand on a higher growth path.  I think you’ve gotta be careful around the stimulus in what you do, I mean for instance the October 1 taxcuts on the back of everything else the government had planned for 2008 2009 were some of the highest stimulus I think we've had for two decades, so while Australia's gone out and cut you know taxes and basically given everyone a thousand dollars at the end of the year from what I can see, they actually were contractionary, so they’ve actually used their surplus they’ve halved it to get things going, we've already spent our surplus, now National's gonna have an April 1 2009 taxcut programme, I think that'll be very necessary, yes we'll be trying to you know spend some money on infrastructure that’s important but it's actually more important than that, it's about things like reform of the Resource Management Act so the private sector starts doing some things, it's about making sure our Emissions Trading Scheme works, it's about reining in those bureaucracies so it's a combination of different things, it's not just get the chequebook out in the Keynesian model.

VERNON SMALL – Dominion Post
 You’ve talked already about the bank guarantee and about the need for regulation, do you think that when you and the Labour Party agree on a guarantee scheme that you'll need to step up the regulation as well, because you're throwing the whole of New Zealand's balance sheet behind these banks?

JOHN Yes there will be some there's no question about that, I mean the challenge for New Zealand and the thing that makes it slightly more difficult is what's happened in the United Kingdom and to a certain degree in the US is there's been partial nationalisation of the banks so to protect what is effectively a taxpayer guarantee….

VERNON  But you wouldn’t see that here would you?

JOHN Well it's not possible here currently because they're not even listed here in New Zealand.  Now there are options about how the government could protect its exposure, but we need to understand okay you’ve got the New Zealand taxpayer underwriting a liability for effectively Australian shareholders banks and we acknowledge that.

VERNON So what are those options you must have some ideas, you're an experienced person in the banking world.

JOHN Yeah well there's a number of options you could lay out, but my point would simply be we're only doing this because if we don’t do this in my view there'll be a serious contraction of credit in New Zealand and that will drive a much deeper recession, it's not about a love of Australian shareholders of Australian banks.

VERNON It's interesting because I mean Guyon touched on this in his interview before that in many ways you’ve been personally one of the great beneficiaries of the Rogernomic's revolution the dollar was floated you made heaps of cash out of it when you travelled overseas, and yet you won't have Roger Douglas in your cabinet and you're doing things which are hardly you know in the spirit of the 84 to 90 reforms, so what is it about Rogernomics that you don’t like?

JOHN Yeah well it's the excesses of what he's proposing, I mean Roger Douglas is proposing to cancel Working for Families, we need to understand what that means.  If you earned $35,000 a year and you had two children that means you don’t get $200 a week.

VERNON So what he did was okay, what he's proposing isn't?

JOHN I don’t think anyone's arguing, if you go back to 1984 we had a very closed economy and it was a command and control system a lot of things weren't working, we were highly indebted as a nation, we needed to change.  I think you can probably have a debate about the speed of change, nor do I disagree with Roger Douglas that there's a substantial problem around education standards, and that’s why we've got a programme of national standards for education, nor do I argue that there's some need for choice, but it's the extremeness of it.

VERNON But you'd have ACT in your cabinet but not Sir Roger, wouldn’t ACT be proposing the same policies?

JOHN Well I just think that there is more balance about what's going on there and Roger comes on Roger's terms and Roger's terms are a very austere government.  Now okay you can have that but you’ve gotta be prepared some fundamental things change, I mean the welfare system isn't there in the state it is in New Zealand, I personally think that New Zealanders look at the welfare system and because there's not overt signs of poverty in the same way that there is internationally they feel better about New Zealand.  We actually have a huge provision of education and health coming through the state, I actually support the view that there should be choice in the private sector, but again the state is going to be a large provider, I mean you can't have it both ways, you either have a very very low tax regime and a very low engagement of the state in your economy or you have a slightly grey one, I think we've got the balance you know sort of right in New Zealand but I think the government in the last eight or nine years has been a bit extreme in both what it's trying to do and the way it's locked the private sector out of any engagements.

RAWDON Okay right thank you very much indeed for joining us John Key, you’ve got a busy day you need to get ahead and we need to move on with the programme, thanks for coming in.