Key: Treasury's long-term predictions 'nonsense'

PLUS: No guarantee of State Highway 1 going through Kaikoura in future. 

John Key has cast doubt on Treasury’s long-term economic predictions, saying “I’m telling you it’s a load of nonsense, because they can’t get predictions in 44 days right, let alone in 44 years.”

The prime minister has given more details of potential tax cuts, saying National’s package could include changes to Working for Families and the accommodation supplement.

Mr Key says he can’t guarantee an extension to the support package for businesses affected by the Kaikoura quakes.

And he will not make any promises about State Highway 1 going through Kaikoura in the future.

Former Labour party member and Wellington mayoral candidate Nick Leggett has hinted that he could stand for National in Mana at the next election. Mr Key says he’d welcome him as a candidate "If he wanted to stand. I mean, I know Nick a little bit [but] I've had absolutely no discussions with him."

RAW DATA: Prime Minister John Key interviewed on The Nation.

Patrick Gower: Now, this week Treasury issued a dire warning saying New Zealand’s government debt could balloon to more than 200% of GDP by 2060 if some serious changes aren’t made. Now, with the bill from the latest quake predicted to be in the billions — billions and billions of dollars — there’s talk that those tax cuts could be off the table. So the prime minister of New Zealand, John Key, joined us today for a 20-minute interview, and he’s got some really difficult decisions ahead. Lisa spoke to him just before coming on air and started by asking him what the current economic growth of 3.6% is down to.

John Key: A variety of things. Very diversified economy, but one thing is you’ve got very low interest rates — so the lowest interest rates in 70 years. Of themselves, they don’t drive economic growth, but when they couple with high levels of business and consumer confidence, that really helps. That’s one factor. Secondly, the construction boom — absolutely no doubt that that’s having a big impact, not just residential house building, but think, you know, SkyCity Convention Centre, all those things around the country. Third thing is a big increase in tourism — number one industry, really, now in New Zealand. Manufacturing growing — I think it’s grown for about 44 months in a row now. So just very diversified.

Lisa Owen: Well, the thing is if you talk to an economist, they say about 2.2% of that is down to population growth, so largely immigration. I mean, is that what we want our growth to be based on? Because that’s not productive growth, is it, Prime Minister?

We reject those numbers, and that’s not what we see. It certainly adds to economic growth, but it’s not in that order of magnitude.

Where would you put it at?

1%, I reckon.

Yeah, because also they say that, obviously, Christchurch is slowing, and that’s contributing less to those growth figures and that it is immigration.

Well, it is right that Christchurch is on a net basis less additive than it was. I mean, there’s $45 billion being spent in Christchurch. Probably the peak spend is starting to come down a bit. But the fact that the economic growth is outperforming what all the economists predicted, including the Reserve Bank and the Treasury as well as international commentators, shows you how diversified and strong the economy is. But there’s nothing wrong, actually, with net migration adding to the New Zealand economy. I mean, I actually think that it’s a positive thing.

But there’s adding, and there’s dominating, isn’t it? Because if you look at those figures, that’s the lion share of that growth down to population growth.

If you want to accept those numbers, but I don’t. And so if you accept it’s about a third of the growth probably of what we’re getting, I think it’s a very positive thing. The thing with migration is firstly it’s a recognition—

What, that immigration is a positive thing?

Very much so, yeah.

But in saying that, when we last had you on the show, you said it’s good as long as it continues to add value. Well, you’ve recently just cut back on the number of skilled migrants, and you’ve said you’re freezing migrants’ abilities to bring their parents in. So have we tipped over? Is it no longer adding value if you’re turning the tap down?

No, I don’t think so. I mean, for a start off, if you think about migration will probably increase from those numbers, but what’s driving that migration — it’s really important that people understand that — is about half of all of net migration is Kiwis either returning or not going. The number of people coming in is increasing in most categories but much more modestly.

Well, actually, I would challenge that, Prime Minister, because if you looked at the September figures, 2100 more Kiwis left the country than arrived back.

Yeah, but you’re looking at one particular month and you—

No, that’s the year to September.

Okay. But overall, if you look at the 70,000 net migration number, we think about half of that is either returning Kiwis or Kiwis not going. We can see the trend in, for instance, and this is more residency than migration, but we can see it in terms of student numbers coming in or people coming on skilled categories, whatever it might be. All of the categories broadly, from memory, have increased over the course of, let’s say, the last three or four years but not dramatically. The big driver has been New Zealanders staying home or New Zealanders returning. And as said, I think overall you look at it and say, ‘What’s the counterfactual to that? What’s the alternative?’ And the alternative would be New Zealanders wanting to leave in big numbers because they see more opportunities offshore than onshore.

Okay. Well, let’s drill down into that growth, because I think it’s important. Our GDP per capita is lower than the OECD average by about 8%, and our hourly labour productivity has basically flatlined from your second term. Now, economists you talk to say that those are the actual real measures of growth. So if we look at that, we’re actually not doing as well as you would say we are.

Well, again, you can pick and choose any kind of number and any analysis from any economist, and they all vary. Trust me, because we get differing advice even from the Treasury to the Reserve Bank to what MBIE might produce from time to time.

So all the numbers are wrong, then? Because that’s what you’re saying.

No, I think— Take a step back and say, ‘Okay, look at the economy overall. What do we know?’ So it’s created about a quarter of a million jobs over the last, I think, two or three years. So quite big job growth. It’s had 25% gross wage growth in the eight years that we’ve been the government. So it’s been about the fourth highest in the OECD. In terms of real terms, wages are rising faster than inflation, and we know unemployment’s falling. We know we have the second, for instance, highest employment rate in the developed world.

Yeah, but that’s the point, isn’t it, Prime Minister? We have high levels of participation in the workforce and we’re working long hours, lots of hours, but our productivity is relatively low.

Yeah, but, I mean, productivity’s an immensely difficult thing to measure, and when you go and have a look at a lot of companies… I mean, I can show on the shop floor of so many companies in New Zealand where productivity is rising. It can be as a result of lots of different things, for instance, greater emphasis on one particular sector which might be deemed to be lower productivity being a bigger share of the economy. So, I mean, all I can tell you is if you look at New Zealand on a relative basis compared to other countries in the world, because you never do an apples for apples comparison, you would say by any definition we’re doing well. We’re increasing the number of jobs, we’re increasing wages, and we’re back in surplus.

So if we accept that in the here and now, if I were to accept that premise that you’ve put forward, if we look at Treasury’s long-term outlook which was released this week, it says, ‘Debt could be more than 200% of GDP by 2060 if steps are not taken to address it.’ And some of the suggestions made were raising GST, raising super age to 67, cutting welfare spending. So what’s the best option? What do you choose, Prime Minister?

Okay, that is 44 years from now—

But someone’s got to take responsibility for it, don’t they?

Absolutely. And the cool—

Is it going to be you?

And the cool thing is Treasury can’t get their predictions right in 44 days, let alone 44 years. I remember being before—

So have they got it wrong, Prime Minister? Are you actually saying—?

Oh, they constantly get it wrong.

These are numbers that are reflective of other reports as well. Just a couple of things have changed, but the baseline premise that we’re going to be in trouble hasn’t.

Okay, so if you go and have a look— Let’s just go back to 2008. When I came in in 2008—

But are you going to do something, Prime Minister? Are you going to take up any of these suggestions that they are talking about to save your grandchildren from what looks like a bit of an economic disaster?

Okay, so if you come— When we came in in 2008, the predictions from the Treasury were much more short term than that, so they were saying by about, I think, 2022, 2023 — we were back —they were predicting debt-to-GDP to be 60%, right? The sort of numbers that you’re talking about now. Okay, so what really happened was under a National-led Government, we got on top of the expenditure that the country was facing. We had years of zero budgets and being cautious with our expenditure and all of those things. We also grew the economy much faster than they thought.

So you’re basically telling me you’re betting your legacy on Treasury being wrong?

Let me just finish this point, because it’s a really important point. They said that within 15 years debt-to-GDP would be 60%. What it really is is 24.5%. So what those things are worked on is a static model that says if the government doesn’t make all sorts of changes—

You’re telling me that you’re doing— You’re not going to do any of those—

I’m telling you it’s a load of nonsense, because they can’t get predictions in 44 days right, let alone in 44 years.

So, you know that— You know that Super is going to be a huge draw on us, and you’ve said that you’re not going to do anything about that. So I’m just wondering what you know that Treasury doesn’t, if you know better.

Well, I mean, okay, go back and ask the Treasury, then, and say — when they gave us those predictions in 2008, when I became Prime Minister and Bill became Minister of Finance, what did the Government do? And in the course of the last eight years; it grew the economy faster; it was far more cautious on its expenditure; it took careful steps in a number of different areas. The overall mix of the economy changed in terms of what was happening. The population changed in New Zealand. My point is these are very static models. 44 days before putting together Budget 2015 and Budget 2016, the Treasury were a mile out in terms of predicting what the budgets would be. These guys are saying, on a totally static basis, we do absolutely nothing; everything carries on. So you said Super — it’s 4.9% of GDP today. In theory, if nothing ever happens and the population doesn’t change, it tops out at about 7.5%, maybe—


Okay, and the OECD average at the moment is 9% and rising today — today it’s 9% rising.

Well, some things aren’t things that we can predict, and Kaikoura has been one of those things, so it’s an unexpected cost. At the moment, the Government’s offering an eight-week business-assistance package, but you’ve said you’ll probably need to, realistically, push that out. So how long—?

That’s my guess.

How long do you think you could offer it for?

I don’t know. So if you take— There’s a number of component parts. Firstly, let’s—

Well, hang on. Can I just say this — Infometrics says in a best-case scenario, this week they’ve said that businesses there will need financial help until next summer. Can you commit to that now?

No, I can’t commit to that now, but what I can say is this. I’ve been there three times since the earthquakes. A number of ministers have been— important economic ministers have been there on numerous occasions, so not only are we doing things, but we’re having very serious discussions with them, and we’re listening to the various communities.

So what’s your best guess of how long you might give them?

I simply don’t know, but what I was going to say to you is that they’re right about one thing. Every place is a bit different, but let’s just take Kaikoura. It’s the easiest one to talk about. There are 2500 people that live there. 1000 people are employed in small businesses. They’re very tourist-orientated. Their season is November to April. There’s no question that this season—

And that props them up for the following year.

Correct. And there’s no question that this season is going to be dramatically affected, so the question is — we don’t know how quickly, for instance, we can open that southern route. We don’t know what the alternatives are for getting people in. We don’t at this point know how dramatically they’ll be affected, except we know, obviously, it’ll be significant.

Well, again, Infometrics says best-case scenario, it’ll take two years to get halfway through the work that’s needed to rebuild the area. So on that basis, and on the basis that they’re losing their best season, can you not give them any guarantees now how much longer you’re going to push that package out for?

What I can give them an absolute guarantee for is that we are utterly focused on what we’re doing, there’s quite a lot of momentum happening there, and we are making good progress. We’ve never gone in there and said to them, ‘This eight weeks is the end of the road.’ We went in there and said, ‘Look, after four days — and same as Christchurch — it’s really important that you have some support.’

But they need more certainty, don’t they, Prime Minister? They need more certainty. I mean, Duncan Garner was down there this week, and people were wondering how they were going to pay their staff on Monday. So they need more certainty, don’t they? You can give them that now.

They can pay their staff on Monday, because they’re part of that eight-week—

Now they can but for eight weeks.

Well, we got there in four days. I mean, I think you’ve got to say, by any definition, that’s pretty remarkable.

But going into Christmas, can you not give them some more certainty?

Well, what I can give them absolute certainty of is that we’re utterly focused on their situation and on making sure that we do things to help them and that we’re fair, but what I’m saying to you is it varies a little bit. For instance, if you take one of the big activities there is whale watch, right?


Okay, so how quickly we can dredge, we quickly, for instance, we can get the boats operating, how quickly we can run, you know, tours and maybe buses or whatever out of Christchurch has quite a big impact on what sort of support they might need.

Right. Got you.

All I’m saying to you is— If you take Wellington, for instance, okay, so the Minister of Business Innovation, Steven Joyce, is seeing, as I understand it, the Wellington Mayor on Monday. He’s going to have a better understanding, I think, of what particular businesses are affected and might need some help and maybe ones that won’t, and all I can say to you is that’s the way you’ve got to operate. You’ve got to be realistic about, you know, business category, all those things.

Can I quickly just ask you about infrastructure, then? You mention the state highway, State Highway 1, a through road through Kaikoura. Can you guarantee that you’re going to rebuild a through road.

There will be a State Highway 1. I mean, there has to be.

Will it be an in-and-out road?


Yeah, because Infometrics and the locals say that they’ll be undermined; their sustainability will be undermined without that.

Well, it will be impossible for me to answer that until we know what—

So no guarantees?

Well, it’s not so much that there’s no guarantees, because you don’t want to unnecessarily frighten people, and I think that would be pretty unfair on both of us, so the point here is just simply that what’s happening is they’re doing a massive assessment of the road. They’ve been a lot of work south and north. They’re obviously looking at these enormous slips. They do have the alliance that they’re putting together now, which is, you know, these very big companies that might deploy huge resources there. There is an uncertain question about what’s slightly north of Kaikoura, but overall, yeah, I mean, of course we want to fix the road up, and yep, ideally, in a perfect world, it looks the cheapest option probably to go through Kaikoura. But my point is, simply, I can’t answer that question, because the very best engineers and people in the world are working on that.

Patrick Gower: You are back with the Nation. Now, before the break, as you heard from Prime Minister John Key, there, he was talking about how the economy is going and those unexpected added costs of cleaning up after the latest quakes.

Lisa Owen: And given the worrying predictions from Treasury in the Quake Bill, I asked him if we can still afford the tax cuts that have recently been hinted at.

Yeah, potentially, so let's work our way through that. I mean, the first things first is that the government's objectives are do a few things when it comes to the economy — one, grow surpluses; two, repay debt; thirdly, get debt to 20% of GDP — probably not too much below that by about 2020. We're on track to do all of those things. Surpluses are rising. We think we'll be under 20% of GDP. That's the advice we get from Treasury.

So you will take that advice from Treasury?

Well, that's the best that we can see.


But, you know, realistically, as I said to you, you know, they do move around a hell of a lot. I mean, that's exactly the point. So they're going to put together the HYEFU numbers, which happen at the end of the year, and they won't be right either, but they'll be a better guess. But, yeah, okay, if we get back to it and say, 'All right, that's broadly the track that we're on. Now, what that shows you is there's some room, I suspect, for some choices. We don't know the full numbers from the Christchurch earthquakes, and when they do those HYEFU numbers, this is what causes all these problems. They have massive assumptions, like, you know, what's the impact on ACC from low interest rates?

But you're optimistic, aren't you?

Yeah, absolutely. I am, yeah. And it's different from Christchurch. Christchurch was a $45 billion cost to the economy overall, but about 17-18 billion from the government. I don't think anyone's suggesting at this point Kaikoura and the general costs of the infrastructure is that level.

So then if we can afford to have some kind of tax cut, what form will it take? You've hinted at a family package, so give me an idea. What are you thinking of?

Okay, so what I would say to you is — we can afford, I think, some choices of things we want to do, and within those choices, there's no question that there are some social services that will need additional support. I mean, you saw us beef that up, for instance, in health and education in the most recent budget. But there is, I think, the potential for us to say, 'How do we let New Zealanders keep a little bit more of what they earn?' And tax is one issue, because, if you think about it, the top personal rate cuts in at 70,000, and it's— people are moving as the average wage has been rising up about 58,000 moving up. People are getting bumped into the top personal rate without doing too much.

So could be something targeted and disproportionately neutral, will it?

Well, we want to fair to everybody, and when you look at tax, all I can tell you is, tax can work and be quite efficient at the higher end and can be less efficient at the lower end, simply because of the sheer costs of it and the fact that you end up with— for instance, if you lower the bottom rate, you give it everybody at the top and it costs a fortune, whereas you might be able to do some integrated family package and, for instance, tax, which delivers, sort of, fairness to everybody but a bit more meaningful at the lower income. I mean, that's my only point.

So maybe reworking Working for Families and looking at the accommodation supplement. Basically, a rework of middle class or—

There's a range of options, but, yes, you could make a difference.

Is that where you're going?

Well, you can make a difference to those families. I mean, I think the point simply here is — if you're very, sort of, I don't know, linear about these things and say, 'The only thing you can ever do is tax,' then by definition because low-income people pay a lot less tax, you're giving them a lot less support than higher-income people because they pay more tax; you're giving them more support, and my point is we'd rather do a bit of balance.

Yeah, so while people like to call it a tax cut, you're kind of looking at a package that maybe involves some relief in other areas of policies that already exist like Working for Families and accommodation supplement maybe?

That may well be right, yes.

Okay, so when and where can we expect all of this to be revealed? Will it be a budget announcement or will you release this on the campaign trail?

So there's a number of factors there, if you think about it. Firstly, we need to get the HYEFU numbers at the end of the year. Secondly, we need to get the sense of, you know, where we are going in the budget and what our priorities are and ultimately what we want to have in budget 2017 and what we want to campaign on. And I guess all I'm simply saying is — I mean, most Kiwis are realistic, and actually—

What are you thinking? What are you thinking?


Budget announcement or campaign announcement?

Don't know at this point.

Okay, all right. Well, a couple of the big stories of the year were house prices and homelessness, so I want to know how you think you've done on that area — scale of one to 10; 10 being fantastic. How have you done on house prices?

Not for me to judge that, but what I'd say is—

No, because the way you judge how you're doing will mean whether you do more. Where are you placed?

Yeah, well, I mean, the point is we are doing a lot more, and that's why you've got this construction boom happening across the country, particularly in Auckland and why you're seeing so many more houses produced every day.

So, what, you're the middle of the pack, or 7ish, 8?

I'm not the political commentator. The quite cool thing about this is you are and I'm not, so I don't have to do that.

Okay, well, homelessness — how did you think you did with that?

Well, again, I think if you look at it, there's no question that the number of people that were affected by rising rents in a hotspot like Auckland went up, and the government responded to that both in Budget 2016 but also that $300 million emergency package, so my point is— Just the one thing I'd say about house — it's, with the best wishes in the world, it's not as straightforward as everybody says, because the time delay between, basically, planning a house and building a house for anybody is quite a long period of time.

Well, given that you say that, special housing areas, which was kind of a cornerstone government policy. How many have been built in  Auckland, and how many have been affordable, Prime Minister?

Can't tell you those numbers, but what I can say—

Okay, shall I tell you them? There's 749 affordable houses as at November, and 1342 in total built as at June this year, when there's a capacity for 61,000. Man, that's snail's pace, isn't it?

Okay, so the point here is that, like all of this data — that's what the viewers don't see behind the scenes — is that you cut and paste little bits that suit your argument—

But those are official figures from the Council.

Okay, so the point is — if you go and have a look, there's 200 special housing areas, right? Almost all of them are either in the process—

But they've got no houses on them, Prime Minister. That's the whole point of these figures.

Okay, get Nick Smith on the show, and ask Nick — cos he has the data; I don't — but I've asked him the same question.

We welcome Nick Smith on the show.

Okay, so get him on the show, and what he will tell you is the number of— If you look at all the dwellings that are going to be built in Auckland over the course of the next five years, ask him how many are on the special housing areas and how many are affordable—

But the point is you have all of this capacity with no houses on them at the moment, because it's not going fast enough, is it?

No, that's not true. So you go and ask any builder in Auckland whether they're going as fast as they can, the number of houses that are being produced in Auckland. What I'm saying to you is — you measure a particular, very finite point — not a point of where there is a mass development that's three-quarters of the way through, or where someone hasn't had the code of compliance. My point is — just go out there — walk around Auckland for five minutes with your cameras; have a look — there's a massive bow wave of development in places like Hobsonville, out in Albany, down south. There's a ton of activity that's happening there. It's in varying stages, but it always takes time. It doesn't matter what anyone tells you—

There's a lag; that's what you're saying.

Well, there's just a huge amount of activity there.

Okay, well, at the start of this term, you made a commitment to reducing poverty, and you conceded that homelessness has gone up on your watch. So what would you say to those working families who are living in cars or garages or substandard accommodation?

Okay, so the first thing that I would say is — we've done a lot in terms of trying to improve the quality of that accommodation, cos we've insulated over 300,000 homes in the time we've been in the government, through our programme.

So, what, your message to them is you're doing your best?

No, what I said you were— a hell of a lot better than any other government, because that number was 50,000 under the previous Labour government over nine years, and in it's 300,000 under us. The second thing I'd say is we've extended the reach of income-related rents by moving it into social housing providers and the likes. Thirdly, we're the first government in 43 years to raise benefits — $25 a week for those families. We've also gone out there, for instance, and given free doctors visits for under-13s. We've had $300 million package now for emergency housing, and for the first time in the history of New Zealand, we've had a situation where people get emergency housing don't have to repay that money. So I accept fully — absolutely fully — that there have been more people because of the pressure on the system, but what I've said— what I would say to you is that we are responding, and we've been responding across a range of different areas.

All right, we've got— We're running out of time. A couple of quick-fire questions. Looking forward to the election next year. Nick Leggett, former Labour party member, who abandoned the party over the Wellington mayoralty. Would you be happy to have him standing as your Mana candidate, cos he's looking at National, he says.

Yeah, if he wanted to stand. I mean, I know Nick a little bit.

You'd welcome him into the fold?

I've had absolutely no discussions with him, but if he wanted to run for National, we take all comers.

Two women candidates standing — East Coast Bays and Wellington Central. Is that recognition that you don't have enough women coming through the ranks?

No, but we always want more women, and in both of those potential cases — both Erica and with Nicola Willis — they're outstanding candidates.

Okay. And last thing, Jackie Blue, Equal Employment Opportunities Commissioner, wants a 50-50 male-female Cabinet. If you're back next time round, can you commit to that?

No. And I think it would be stupid to do that, because I think if you went to our female ministers, of which we've got a tremendous group of talent from Paula to Amy to, you know, Judith, you name them, Hekia, Anne Tolley; there's just a bunch of very talented women in there. They are there because they're immensely talented. Yes, it's great that they're women, and I think there should be balance, and I think if you look at what I've done in the time I've been Prime Minister, I've been fair, but—

No commitment to 50-50. All right, then.

A quota would not be— You're not here because you're a woman. You're here because you're a good interviewer and you run a good show.

We will leave it there, Prime Minister. Thanks for joining us this morning. Appreciate it.

Thanks very much.

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