21 May Post-Cabinet Press Conference

>> PM: Hello. Welcome, Corin. It's nice to see you there. Thursday is, of course, Budget
day. The Budget will show that the Government is on track to post a small surplus in 2014-15.
That is a considerable achievement, given the effects the 2008 recession, the global
financial crisis, and the Canterbury earthquakes have had on the Government's accounts. At
the same time, the Government is investing for the future. We're continuing to spend
money in priority areas like health and education, and areas that will help build a more competitive
economy. The difference is that we are finding savings and increasing revenue to pay for
these things; we aren't just layering new initiatives on top of everything the Government
is already doing. In terms of Budget economic forecasts, you'll
be aware that in the last couple of weeks we have seen some developments in Europe that
have increased uncertainty in the global markets. Anti-austerity parties are expected to do
well in the second Greek elections in June, and the Greek banking system is under considerable
pressure. Concerns are also growing around the Spanish banks, which were downgraded last
week, and the Spanish Government bond yields have been rising very sharply. However, it
would be unwise to rush to judgment. We always knew that Europe would have its ups and downs.
It's important to differentiate whether these events are one of the downs we all expected,
or whether they constitute something more fundamental. Volatility is, of itself, nothing
new. You might recall that there was a real sense of crisis in Europe late last year,
but this settled down in the new year as European Governments responded. So we have to see how
things play out over a slightly longer period of time.
The advice we have had from Treasury is that the main Budget forecasts, which you'll see
on Thursday, remain its best judgment in the face of uncertainty about where the New Zealand
economy is going. Those forecasts already factor in a good deal of weakness and volatility
in Europe, including a sharp recession across the euro area. However, it is true to say
that the risk of something worse happening in Europe has increased, even if the central
scenario remains the same, so we are closely monitoring developments. In terms of our fiscal
strategy, it remains absolutely the right one in the circumstances. If the financial
markets do tighten up, then it's hugely important New Zealand is seen as a good risk. By committing
to surplus by 2014-15, we are taking a responsible path of fiscal management while at the same
time continuing to invest in future growth. If the global economy really took a turn for
the worse, we've always said we would look at the right policy response. What we've shown
over the last 3½ years is that we can successfully adapt to situations that present themselves,
such as the Canterbury earthquakes. It's far too early to speculate on that, and in the
meantime we're putting the economy in the strongest position to cope with any crisis
by getting the books back into order and limiting debt.
Earlier today corrections Minister Anne Tolley and associate corrections Minister Pita Sharples
made a pre-Budget announcement at Rimutaka Prison. This announcement involved reprioritised
funding of $65 million over 4 years for several initiatives that are aimed at breaking the
vicious cycle of prisons and reoffending. These initiatives are focused around increasing
drug and alcohol treatment, as well as increased education, skills, and employment programmes
for prisoners. Some of the initiatives announced today include more than 33,000 additional
offenders, an increase of almost 500 percent, to receive new and expanded drug and alcohol
treatment in prisons and in the community. Around two-thirds of offenders have addiction
problems, and this is a major driver of crime. Nearly 8,000 more prisoners and community
offenders are to receive new and expanded rehabilitation services, a 230 percent increase
in numbers. The National-led Government is serious about making communities safer by
reducing reoffending. Today's announcement will help contribute to our goal of a 25 percent
reduction in reoffending by 2017 and 18,500 fewer victims of crime every year from 2017.
In March this year I announced 10 challenging results as part of my expectations for a more
efficient and results-driven Public Service. Reducing crime by reducing reoffending was
one of those challenging results. The goal announced today of a 25 percent reduction
in reoffending by 2017 is one of the measurable and stretching targets that sit under that
result. In terms of the House this week, we'll be
doing the Crown Entities Reform Bill, the Reserve Bank of New Zealand (Covered Bonds)
Amendment Bill, and the Commerce Commission (International Co-operation, and Fees) Bill.
In terms of ministerial activity and my own activity, tomorrow I'm at caucus and question
time; Wednesday I'm also in Wellington; Thursday I'll be here - obviously its Budget day; and
Friday I'll be in Auckland. Among other things on Friday I'll be addressing the Trans-Tasman
Business Circle at lunchtime on Budget 2012. On Saturday and Sunday I hope you will all
be joining me at the National Party northern regional conference, the last of our season.
And finally, for those of you who may be interested in these things, the IDU - International Democrat
Union - is holding a function here in New Zealand on Sunday, and I'm highly likely to
be meeting Lord Ashcroft, who is a senior IDU-holder and will be here at the meeting,
just in case you check out his jet on the runway.
>> Media: How do you think this year's Budget will be remembered, given that it will be
your second consecutive zero Budget? How do you think it is going to go down?
>> PM: Well, I think it will be remembered as a very sensible, considered Budget that
correctly addresses the issues that New Zealand faces, which is we need more money spent in
health, education, science, and innovation, but we don't want to rack up more debts. I
know that there are the political parties already talking about spending more money
that this country doesn't have. All I can tell you is, in the end, if you spend more
than you earn, it is called Greece, and I don't think we want to end up in that position.
>> Media: David Shearer today is saying that there needs to be cross-party consensus on
the superannuation age, and that's one of the tough decisions that need to be made with
the current fiscal situation. Do you think there is room for cross-party talks on that?
>> PM: I don't see any real need to do that. The major political parties went into the
2011 campaign very clearly laying out their economic prescription. We made our recommitment
to hold the rate of super at 65. Labour campaigned on raising that rate. The New Zealand public
had a clear choice and overwhelmingly they rejected Labour.
>> Media: But if you were serious about being fiscally responsible through the medium and
the long term, surely you would look at the age?
>> PM: Well, as I've always said, at the moment I don't think that's the issue that
the country faces. Some people want to have that debate. Well, even the Retirement Commissioner
herself thinks that issue should be addressed in 2020. There are
a lot of issues to address before then, and my view is that at this point it's affordable.
>> Media: Just in terms then, isn't there supposed to be some sort of working party
set up for Peter Dunne's idea about a flexible wage - is that right?
>> PM: Yes, that's right, yes. That's around the age you could take it, but it wouldn't
alter, as I see it, the fiscal liability of the Crown, because what it would mean is that
people would be able to retire earlier than 65 but obviously take a reduced pension, or
elect to retire at over 65 and take a higher pension. But the cost to the Crown would not
be altering. >> Media: Is that something that you would
feel sits in your previous pledge not to change the retirement age, or do you see that because
it doesn't alter the fiscal cost as being something quite doable within that? >> PM: Yeah,
it's something that's quite doable, and in the end it's a voluntary election by any individual.
We wouldn't be taking away any entitlements they have. If people want to choose to take
more and retire slightly later that's their call. Whether it's workable or not, there
are lots of challenges in that, but we're happy to have that discussion.
>> Media: Isn't it fairer for people to signal early that the age will go up. It gives time
for those people who might be in their 30s, 40s, and even in their 50s, time to adjust
to
the fact that they won't get the State pension until a bit later?
>> PM: I think realistically, if you're in your 30s or 40s, you're 25 to 35 years away
from retirement, so, no, I don't think that would be terribly necessary.
>> Media: What about those in their 50s? >> PM: We've made our call on what we think
is appropriate for the retirement age. We've also made our call on a huge number of other
initiatives in the economic space. Labour have chosen to take a different response.
They went into the 2011 election promising to spend a lot more money. In the end, New
Zealanders rejected that. So that's our economic prescription.
>> Media: Super costs a lot, though. I mean, it's a big amount of spending. Surely you
should be looking at it? >> PM: Well, as I said, we're very happy
with the economic numbers we have. It's built into the forecast models that Treasury's got,
and Treasury's analysis actually of out to about 2020 at least is certainly not an issue
they're terribly worried about. >> Media: Do you think you might look at changing
your pledge at the next election, or are you locked into that?
>> PM: I guess anything can always change, but that's not my intention at this point,
no. >> Media: What about, as you say, if conditions
in Europe deteriorate? Is that one of the policies you'd re-look at?
>> PM: Super? >> Media: Yeah.
>> PM: No. Look, if you think about the two things that Labour have been talking about,
raising the age of super or a capital gains tax, neither of them would make an iota of
difference in terms of any situation that may unfold in Greece. In terms of the retirement
age, no one's arguing that should be altered until 2020 - well, that's in 8 years' time.
In terms of capital gains tax, that doesn't raise a hell of a lot of income between here
and 2020. So in our view they're not the big issues.
>> Media: So what is the strategy if it deteriorates in Europe? Do you cut more, or do you blow
out the surplus target and say we'll get there later?
>> PM: I wouldn't want to speculate on that overly today. I think we've got a track record
that's proven that we can alter to the circumstances that we face. I think New Zealand certainly
is in a vastly stronger position than it was back in 2008 when we became the Government.
But, ultimately, I don't think we would, if we were required, tremendously change our
spending patterns. What is more likely is that we'd have less revenue; that would be
the impact of an economic slow-down. >> Media: I guess New Zealanders would want
to know the big policies - the interest-free student loans, Working for Families, KiwiSaver
- the ones that you haven't really touched in a big way. Would they be on the table if
things get considerably worse, as they could? >> PM: That wouldn't be my intention as I
stand here today. What would be more than likely to happen would be there'd be an economic
slow-down, which would slow down the tax revenue we've got, and we might bridge that for a
bit longer. But, overall, we've been very reluctant to aggressively go after those areas
because we think New Zealanders rely on that, and we think we've done the right thing. I
also think if you look at the amount of new Budget spending we've had in our four Budgets,
I think as I said last week, it adds up to $700 million. If you contrast that to Labour,
theirs was about $20 billion. >> Media: But would you be happy to ditch
the surplus target - >> PM: Sorry?
>> Media: That trading off the surplus target in 2014-15. It seems to be quite locked in
stone in the last ____ FTR 16.13.02 in your Government. Would you be happy to push it
back another year if things do turn to custard in Europe?
>> PM: I wouldn't be happy to push back the surplus target if that was a situation that
resulted because of a significant global slow-down. That might be beyond our control. I don't
think there would be a point of cutting just for the sheer sake of it. But I will equally
- the Government's been very focused on trying to get back to surplus, and I think for very
good reason. If there is further weakness in Europe following the prescription the National-led
Government has is absolutely the right one. We want to be on that list of countries that
are seen as a good risk. That's exactly the position we're in at the moment. Our bond
yields are coming down, it's cheaper for New Zealand to raise money, and it's cheaper for
our companies and individuals to raise money. The last thing we want to do is abandon that
target, unless we really have to. >> Media: So if it's so cheap for us to raise
money, then why not just raise a little bit more? We're one of the most favourable nations
in terms of our bond yields. >> PM: That's right, but we have high levels
of private sector debt. We've made considerable assurances to the rating agencies that we
intend to get back to surplus by 2014-15. And I don't think it's in New Zealand's best
interests to be borrowing money unless we absolutely need to.
>> Media: Standard and Poor's told us earlier today that getting back to surplus by 2014-15
wasn't necessary if it was going to - >> PM: Who said that?
>> Media: Kyran Curry at Standard and Poor's? >> PM: Kyran Curry, yeah.
>> Media: He said that if it was going to be at the risk of slowing down growth in New
Zealand, it wasn't worth doing. >> PM: Well, that's what I've always said.
I think we're on track to do the right thing. I've always said, as I said at the start of
the year, that there's some flexibility there if we absolutely needed it and the global
situation demanded that. But I don't think that's the situation we're facing at the moment.
I can't be sure the way things will unfold in Europe. But I will say we've been at this
sort of situation before. We had it with an inability to renegotiate the new debt ceiling
in the United States. We've had it in Europe late last year. Of course, things could get
a lot worse. But, equally, this may be yet another storm that blows over.
>> Media: Looking at it as someone who's been a financial market player, and you're looking
at the global economy, are you optimistic about what you're seeing?
>> PM: Like everybody, we're obviously concerned about what we see in Europe. I mean, it's
a serious situation. But it's been a serious situation for quite some time, and as I said
in our forecast, Treasury has built in a significant -
>> Media: But are you optimistic about it? >> PM: Well, as optimistic as you can be.
I think the situation is more volatile and risky now than it was probably 3 months ago,
but that doesn't mean that this situation won't blow over. What I can say is New Zealand's
in a lot better shape. Fundamentally, our businesses have got their balance sheets in
order, our banks are a lot better funded, the Government's been on a track where it's
been sensible about what it's been doing, and the economy generally has been underpinned
by strength of what's been happening in Asia. So I feel a lot more comfortable as I stand
here today than I did when I assumed the job of being Prime Minister back in 2008.
>> Media: You say Treasury's taken into account in the main the scenarios of some of that
European uncertainty. Does that include Greece exiting the euro? And does it also include
the drop in commodity prices and the fall in the dollar that New Zealand's experienced
most recently, probably since that forecast was finalised?
>> PM: Yes. The last forecast would have been finalised at the end of April. So they
will have factored in all of that information up until that point. There's obviously an
upside and a downside scenario, which probably encompasses the one that you're talking about,
and that will be in the Budget. But the main forecasts, I think, are in line with the fact
that they expect to see a significant recession in Europe, but not necessarily a significantly
worse position than maybe we are in at the moment.
>> Media: And is it still your view that we won't go into a recessionary period?
>> PM: Well, obviously, no one can be absolutely sure what happens in terms of the next 6 to
12 months, but on the best information we have, we have lots of advantages and we have
not seen anything in our forecasts which indicate that we would. We still have relatively high
commodity prices, although they are coming off. The exchange rate is helping in terms
of coming down a wee bit in that regard. Asia is still a strong market for us. Australia
still has higher growth rates than most of the other parts of the world, which is good.
We have domestic stimulus as a result of the Christchurch earthquakes. So, look, it is
always possible, but we are in much better shape than most others, and that is why we
keep saying that we have grown in 10 of the last 11 quarters. We are predicted to have
a faster growth rate than all of the eurozone, the UK, America, most probably Australia,
and many other parts of the world. >> Media: You're also factoring in a 0.75
percent drop in eurozone GDP early 2012. Are ours similar to that?
>> PM: You'd have to check exactly with Bill English, but I think it is in that order of
magnitude. They have certainly factored in a significant recession.
>> Media: Before 2014 comes 2013 - what sort of deficit are you looking at in the coming
year, in the order of? >> PM: You'll have to wait until Thursday.
>> Media: Is it out of line with the sorts of deficits you were looking at before the
election? >> PM: Wait until you see on Thursday. That
might be one of the surprises in the Budget. >> Media: What about the outturn for this
current year? Mr English has said $10 billion to $12 billion. Is that still the sort of
range you are looking at? >> PM: You might have to wait until Thursday.
>> Media: A good surprise or a bad surprise? >> PM: Well, wait until Thursday.
>> Media: Prime Minister, just on another issue, the Yong Min Yan case - what do you
make of David Shearer's handling of it? The Bill Liu or Yong Min Yan case - what do you
make of it? David Shearer has essentially taken Shane Jones at his word. What do you
make of Shearer's handling of this? >> PM: Well, it's hypocritical, isn't it?
I mean, basically he talks tough, but the first situation where he's faced a situation
where he has been highly critical of me and the National-led Government, he has simply
taken the guy at his word. I'm not questioning Shane Jones' word, but I was always very cautious
as Leader of the Opposition before I leapt in and criticised others, and David Shearer
hasn't been. >> Media: He says, in a different approach
to you, that he's spoken to Shane Jones at length for 2 or 3 hours. He has gone through
the documentation to also reassure himself that the process was basically above board.
>> PM: My understanding is Shane Jones hasn't wanted to answer the questions about why he
received all the official advice to reject the application for residency and for citizenship,
and then made the decision to change that. Now, if Shane Jones and David Shearer want
to answer those questions tomorrow, that will be great. I am sure the media will be interested
to find out why they made that decision. >> Media: But your Ministers would overturn
- like, for instance in immigration cases, they go to a Minister at times and then they
would actually overturn what the official advice was because they had rejected that
application. That is not unusual. >> PM: No, that's right. There are times
when Ministers make different decisions. I guess they will tell us why tomorrow.
>> Media: Has there been any suggestion to you that there needs to be an inquiry into
this matter? >> PM: I haven't had any advice on it.
>> Media: What do you make of the facts of the case? Essentially, here's a guy where
Shane Jones has warned that Yong Min Yan, or Bill Liu, had an Interpol red alert on
him, and he still overturned the officials' decision. What do you make of the facts of
it? >> PM: I haven't had any briefing on the
case, so I honestly can't tell you. In the end, it is for others to make that assessment.
It is important to understand that it is Bill Liu that is on trial, not Shane Jones, but
it'll be interesting to see what comes out as a result of that trial.
>> Media: The Greens and Ganesh Nana today suggested that accessing $100 billion that
Kiwis have in term deposits - the Government should access that money rather than sell
off assets and lose that revenue stream. What do you think of the idea?
>> PM: We disagree with that economic analysis. We asked Treasury to provide us advice. They
provided advice that supported the mixed-ownership model, and I am in much more of a mind to
accept the Treasury advice than I would be of, basically, BERL's.
>> Media: Do you accept the premise, though, that the current account deficit could well
get worse? It is already projected to get worse, but could get even worse as a result
of this because some foreign ownership of shares in those companies -
>> PM: No, not really. For a start-off, we're saying that 85 to 90 percent of those companies
are likely to be held by New Zealanders. And there is no reason to believe that that wouldn't
be the case. Secondly, in terms of the current account deficit, that has been a deficit on
two fronts. Obviously, the significant part has been the trade deficit, and we have managed
to turn that around. But obviously there is still a lot more work to be done. In terms
of the investment account, actually it is about neutral in terms of our investments
both onshore and those offshore. So at the real margin it would be a very small amount
if it was owned offshore, and it is not likely to be material in terms of the current account.
>> Media: Len Brown has today repeated his call for the Government to step up and pay
its share of the Auckland City rail link. What is the Government's response to that?
>> PM: We would just need to be satisfied that it fitted the criteria of being a good
investment. At the moment, the most recent report I have seen on the inner city rail
loop does not support that view. It supports the argument that people may well use more
rail, but they are likely to get off other public transport in doing so. That can change,
and obviously there has been significant investment in rail both with our Government and the previous
Government in terms of double-tracking, electrification, and the likes. So we are not saying never;
we are just saying that we would need to see better analysis that that was the right economic
decision. Certainly, at the moment we don't have the cash to do that.
>> Media: The Christchurch City Council, Bob Parker in particular, says that they have
proven that they don't need to do asset sales in order to make the recovery work, make their
long-term plan work. So why does the Government keep raising this?
>> PM: Well, I'm not sure they'd be in a decision to actually answer that question
today. If you have a look at the amount of the likely costs of the Christchurch rebuild,
and you consider all of the assets where there may well be a shortfall, then ask the question
of who will pay for those assets, it may be more logical for Christchurch to have a different
mixture of assets. There is nothing terribly magical about their airport. It is a great
airport, but whether they need to own all of the amount of shares that they do or might
want to own a bit more of something else is an interesting debate for them to have. In
the end, that is a matter for them. I'm not going to force them to do that; we are just
simply saying that they are in a unique position slightly different from other councils around
the country, where they have got some very large and potentially quite profitable projects,
and they might want to think about the mixture of those assets. If the view that we're all
going to take is that once we own an asset we can never change that asset, then we'd
better make sure that we get our investment decisions right on day one. Personally, that
is not the view that's been supported around the world. I was recently reading some analysis
of countries around the world that have engaged in either the mixed-ownership model or privatisation,
and the numbers are tens of thousands of projects around the world in pretty much well over,
I think, 150 countries. >> Media: You say you wouldn't force them,
but under the new Local Government Act, since you can cap rate increases to inflation plus
- >> PM: Yes. 
>> Media: - you are in a position to basically put them between two bricks, aren't you, and
say "You have to do it."? >> PM: No, they'll be in the position to
decide how fast they want certain assets to be developed.
>> Media: What's the council supposed to make of it when the earthquake recovery Minister,
the local government Minister, and the Prime Minister suggest they should be open to the
idea? Are they not supposed to take that as a fairly broad hint that they should?
>> PM: I think they should be open to the idea. I mean, it's as straightforward as that.
I mean, we're simply saying we're all grown-ups - let's have a discussion about the mixture
of assets we own. Mum and dad do that in their home every single day. They think about the
mixture of assets they've got. They think about where they might want to buy something
else or sell something. Very few people live in the same house forever, own the same car
forever. >> Media: Going back to my question, so you're
really saying to them "We may have to cap your rate increases. If we do, your only alternative
will be to develop these assets more slowly if you want to keep the ones you've got."
>> PM: Well, I'm simply saying - it's what I said to you earlier - I don't think they
are in a position to make that call yet, about whether they absolutely might want to consider
that or not, because I don't think any of us are in the position to fully understand
all of the assets that are likely to be developed, who will pay for them, and what share of them
Christchurch might want to have. I'm just simply saying that they have some really exciting
opportunities to do some remarkable things. They might find the people of Christchurch
say "I'd rather the council owned a bigger share of the convention centre.", or whatever
it might be, "funded with less debt, and slightly less shares in Christchurch airport." They
may not, and that's a matter for them as local government, but I think we can have a grown-up
conversation about it. >> Media: But you will be able to say to them
"Those are your options; you can't fund those things by a larger rate increase."
>> PM: Well, what I can say to them is "This Government has put its money where its mouth
is". We put $5.5 billion aside in the last Budget. If you think about that with the combined
EQC liability, it's about $13 billion of the so far $20 billion cost of Christchurch, and
it may well cost more. So we've certainly stepped up to the plate. If things want to
go faster, then we might need to look at all the options on the table.
>> Media: But they can't use rate increases to do it - large rate increases to do it.
>> PM: They might be able to. They're not forced by the law; that's an option in the
law. The law also potentially gives them the option to come and talk to the local government
Minister about other alternatives, and Christchurch, clearly, is in a different position to others,
but they have huge amounts of infrastructure they might want to develop. I don't think
it should be seen as a negative thing. I think there's actually a lot of very exciting things
they could do. They just might want to test those boundaries.
>> Media: Mr Parker has told one of our reporters in Christchurch that, potentially, the Government
actually just doesn't fully understand the financial solutions that the council may be
exploring, but you seem to be saying that, actually, the council itself doesn't understand
what's ready to unleash. >> PM: Well, I don't think anybody can fully
quantify the level of development that might take place in Christchurch. We have a sense
of the ballpark, but we don't understand the absolute component bits at this point. There
are still ongoing disputes about the insurance payouts, what might be developed, and then,
ultimately, what the options are, but take a look at a city like Melbourne and think
of the incredible things they've done there to develop that city as a hub for sports and
culture and entertainment. Christchurch might take the view that it wants to be the Melbourne
of New Zealand, in which case it might say to its people "Look, here's a better mix of
the assets we've got." I'm not saying it will. I'm not saying we are going to force it. I'm
just saying it might want to have that conversation because it is in the unique position to do
that, but in the end it is up to them. There are only very limited ways councils can fund
big dollops of infrastructure. They are, literally, debt or rates, and in the end, both of those
roads lead to the bank, because even if you want to go and borrow a lot more, and pay
for that through rates, in the end there's only so much the ratepayers can afford to
pay. OK? Thanks very much.