McCully accused of misleading cabinet over Saudi Arabia sheep deal

John Key has confirmed the cabinet was told there was a legal “risk” from Saudi billionaire Sheikh Hamood but Hamood’s business partner George Assaf told The Nation the pair had no intention of suing.

Mr Key says his government never considered resuming live sheep exports to the Middle East but MFAT documents show Foreign Minister Murray McCully investigating the possibility and planning a 45,000 sheep shipment in 2015; Mr Assaf says the 900-sheep planeload was a “trial shipment.”

Meanwhile, National is looking at prefab houses to help solve pressures on housing but Mr Key says it’s not “a long-term solution.”

Mr Key says the government does have the power to revoke special conditions for developers landbanking in special housing areas but says there “are a number of factors” why the building may be slow. (In 2007 he had said landbanking would come “with conditions.”)

The poorest New Zealanders are better off today than when he visited McGehan Close in 2007, the Prime Minister says, having promised at the time “we have to do better.”

Says since then average wage has increased by $11,000, unemployment is down, and interest rates have come down, Mr Key says.

He admits there is a “lag” in the growth of housing supply but can’t say how long it will be before we see enough housing supply to affect house prices.

He insists the government can and does control of immigration numbers, but won’t say if he’s happy with the number of non-New Zealanders arriving in the country.

RAW DATA: The Nation transcript: Interview: John Key

Watch the interview here

Patrick Gower: Good morning, Prime Minister, and thank you very much for joining us. Now, I want to take you back to your first big speech as leader of the National Party – that speech about McGehan Close. You talked in that speech about streets in our country where helplessness has become ingrained and said we have to do better. Now, on McGehan Close, when you went there, people were living in homes. Now we are looking at people living in cars. Is that really better? Is that better?

John Key: I think there’s no question New Zealand’s better. If you go back to McGehan Close in that particular time, 2007, there still would have been people living in cars. It doesn’t make it right, but that position would have been there. But if you think about what’s happened in that period of time since we’ve been the government, and you think about the ability for people to get a world class education, for their children to get free doctor’s visits, the fact that there’s more financial support for people, all of those things, for a huge number of people, have changed and improved their fortunes.

But looking at the underclass in particular, the underclass – more people in cars, more homeless now, you said in that speech that if left unchecked, the underclass will affect us all.

And I agree with that. And that’s why we are investing so heavily to give support to people. It’s why, when the financial crisis came, we stood so resolutely behind those people. It’s why we spent $10.4 billion a year supporting the most vulnerable in our communities. It’s one of the reasons why we’ll build 2000 more Housing New Zealand homes over the next two years.

Sure, and with all of that, and with raising benefits as well, it’s still not enough. We’re still in the same place when it comes to the underclass. We may be even worse, from what we’re seeing.

I don’t think that’s right. I think there’s obviously the very extreme end of people that are homeless, and we need to give those people more support. And one of the reasons the Budget addressed part of that issue about making sure they weren’t grants, that they weren’t loans, that they were actually gifts to people, and that there is more support being built in terms of social houses or whatever, that’s very important. That’s a very small subset of a wider group that I agree who are still not well off at all, by any measure, and we need to support those families tremendously. But the way to do that has got to be ultimately through them having opportunities. That’s what a growing economy is about.

We’ve looked at those opportunities just this week. Statistics New Zealand said the top 10% now have 60% of New Zealand’s wealth.

What they said, I think, was the top 10% have 50%. That was pretty consistent with the last decade. There hasn’t been a tremendous change there.

No, ‘that’s consistent’ means you haven’t changed anything since McGehan Close. That’s the point that we’re getting at here, isn’t it?

No, but I wouldn’t agree with that. If you go and have a look, the average wage in that time has gone up about $11,000. The unemployment rate in New Zealand is now falling pretty dramatically. You’ve got to accept that you don’t live in a static environment in a global world where most countries are in deficit and most countries have got quite high levels of unemployment. And one of the ways you can see that New Zealand’s doing better is not because the politicians or I myself as Prime Minister say that. It’s what do New Zealanders think? And the answer is New Zealanders are staying here or they’re coming home because they see those opportunities.

Sure. And one thing that is happening and one thing that we’re also seeing in another measure is housing. And in that speech, you spoke about the Kiwi way. Well, the Kiwi way is when there’s a hard-working couple with good jobs who save up and make sacrifices. Now, in Auckland, that kind of couple is now facing an average house price of almost $1 million, when the average household income is about 90K. Is that the Kiwi way? Average couples shut out of the housing market?

I don’t accept that they’re totally shut out of the housing market. I certainly accept that it’s challenging in Auckland for people as they try to get on the—

It’s harder to buy a house than ever before in New Zealand history, Prime Minister.

Well, firstly again, if you go an look on a relative basis around the world, where you’ve got a high growth environment or a city that’s doing well, pressure’s there on housing. So this is not a new story. It’s true in Los Angeles, it’s true in Sydney, it’s true in Melbourne, it’s true in London. It’s true in many parts of the world.

But does that make it better?

No—

Does that make it fairer?

No, not at all. But—

Is it fair for these first-home buyers? Is it fair at the moment? Is the housing market fair for them?

Well, it’s always—I think you go and ask anybody who’s bought their first home; they’ll tell you it was difficult to get it. But the point is, the Government doesn’t sit back and say that people should be locked out.

It’s 10 times the average wage. 10 times the average wage. It’s just so hard.

Ok, you can look at lots of indexes – I mean, interest rates are extremely low in New Zealand at the moment, so in some indexes, they will say it’s more accessible for people because of their capacity   to pay those interest rates and afford that mortgage. You’ve certainly got higher levels of growth.

With respect, people who are trying to get into the housing market, when you talk like this, they don’t see it that way. They see the housing market as unfair. Have you run out of ideas? Have you pulled every lever or can you do more for these people?

OK, so, again, if you go back and take a step back and say, ‘What’s happening?’ Let’s take Auckland in that period of time – enormous release of both special housing areas and Crown land; double the amount of houses being built and consents being issued; 24,000 more people working in construction in Auckland; a big pipeline of activity. So if you go back to, say, 2000—not even 2008  or 2009, when I first came in, but even in 2010 or 2011, 2012, we didn’t talk about housing, why? Even though a third or half the houses were being built? Because the confidence level of New Zealanders was not as high that they would be able to afford that house. So what has changed? Just to finish, I mean, what’s changed in that dynamic now is that you do have very low interest rates. You certainly do have high levels of confidence. You do have a sense of New Zealanders of real optimism. Now, yes, we need to help them in, and that’s why we have KiwiSaver HomeStart, and that’s why there’s so much activity happening—

I mean, I just want to pick up on something from that McGehan Close speech and go back to it, because in that speech, you said the Labour Government then went around, and I’ll quote you, ‘listing a whole lot of programmes it had piloted and reviews that it introduced’,  but you were interested in what works. I mean, have you fallen into the same trap now, all these years in, as the Labour party, listing programmes, or are you going to do things that work to fix that housing market? Can you do things that work to fix that housing market?

Go and have a look at the basic stats in housing, and ask yourself whether it’s working or not, because if you have a look at the number of houses being consented, the number of- the amount of people in construction, the amount of activity that’s taking place, the number of people who are actually buying a house- Go and have a look at all of the different factors, and what you’ll see is that there’s a huge amount of activity, more activity than we’ve seen in the last 11 years, taking place. So it’s not that the programmes aren’t working. What you do get with housing-

Let’s pick up-

No, just to let me finish, what you do get, though, is housing is always a lagging indicator, because one of the factors is that people can’t- a developer can’t produce a house overnight, and so what the Government has to do is obviously have support of those programmes to assist them to do that. But no one can click their fingers and make 20,000 houses arrive, and actually, the private sector and New Zealanders weren’t that interested-

So with all of this, there is a lag. And a short answer to this one – when will we see house prices start coming down? Will we see house prices start coming down? When will we see them level off?

Well, that’s always one of the challenging factors, of course, for the Government as well, is you don’t want to see house prices crashing, because if you do that, the single biggest asset that most New Zealanders own is there home, and therefore-

But how long is the lag until things start working out?

Well, if you look here in Christchurch – I mean, we’re here for the conference this weekend – you had a tremendous deficit of housing because of the inflow of people and the number of houses destroyed as a result of the earthquake. House prices were going up 16%. Rentals were going up dramatically. We are now in a position where rentals in the last 12 months-

How long is the lag, do you think, in your opinion?

Well, I can’t give you an exact number. It’ll depend on a range of different factors. But what I can say-

Years? Are we talking years?

I just can’t tell you. It would depend on a number of things. But what I can say is that you are seeing a huge amount of supply coming into the market. Now, you know, what we have to what and see is – is that enough? Well, you know, if Auckland keeps being a strong and vibrant place, like Tauranga and others, then it will take some time.

The most important part of supply is to do with landbanking, isn’t it? Would you agree that landbanking is a problem?

Well, land has been the biggest issue, so if you look at the average section-

Because I’ll quote you something from 2007 that you said before you came into Government. ‘We’re seeing an awful lot of landbanking.’ This is in 2007, your words. ‘We want to change the rules around that. We want to streamline the recent release of land,’ which you’ve done, ‘but it will come with conditions’ – this is your words – ‘that it can’t be land banked’.

Correct.

When are we going to see those conditions ‘that it can’t be land banked’? Because we’ve got this problem now.

But that’s exactly what we have done. I mean, if you think about- The reason that I made those comments was because the previous Government allowed the council to have the metropolitan urban limit.

There are no conditions on special housing areas. There’s 56,000- room for 56,000 dwellings on your special housing areas; 1000 homes are being built. There’s no ‘use it or lose it’ policy. Would you think about introducing it?

Okay, so you don’t quite understand those things, I don’t think. Okay, the Metropolitan Urban Limit is a set area. Special housing areas allowed new developments to take place either around that or outside that but certainly the release of land. The national policy statement actually will drive the release of land. So for all intents and purposes, metropolitan urban limits aren’t applicable any more, and in fact, actually, the main reason why people land bank is because their perception of the capital gain of holding the land is greater than actually developing it today. You put enough land in supply, which is exactly what we’ve done here in Christchurch, you’ve resolved that issue.

You might have misunderstood the question – it’s about special housing areas and the landbanking that’s going on in those special housing areas. Will you look at in the future, with special housing areas, a ‘use it or lose it’ policy that would stop this?

They can be revoked. If someone has a special housing area-

Revoke one. Stop these guys landbanking.

Well, we can do, but there can always be a number of factors of why it’s taking some time. And when you say there’s 1000 houses built, what you’re really being a little bit disingenuous with is that there’s enormous-

It’s a fact.

Well, there’s enormous activity happening. What you’re counting is one particular point in time. You’re not counting all the houses that are halfway through construction. You’re not counting all the infrastructure that’s being built and allowed that bow wave of demand. The reason there’s 24,000 more people working in the construction sector, the reason there’s over 9500 consents turned into houses, the reason we’re building 40 houses a day in Auckland, not 10 as we were, is because of all this activity. It’s not the finish point – that point happens over time.

What about prefab houses? Is that something the government would look at — getting things up quickly, maybe on your own land? Is that an option?

Certainly Paula Bennett has had a look at that sort of pop-up housing, for want of a better term. And that’s possible. You can’t do it in massive volumes, but you can do a little bit of stuff.

So you might look at doing that — some prefab housing?

Well, she’s looked at those issues, but you wouldn’t want to define that as the long-term solution to those issues.

No, but it’s something now. It’s better than a car.

Yes, but I mean, in fairness again, we are moving 135 people a week into special housing, in social housing, and they’re…

But one thing — do you rule out building houses? I know it’s not your policy. Do you rule out actually the government building some houses?

Well, the government won’t build houses in the way any more than the government builds roads or builds schools. It hasn’t happened since the Ministry of Works.

In a KiwiBuild Labour style — is that just off the agenda?

You don’t need that. What you need to do is enable the big developers to do that. I mean, if you take something like Three Kings. Three Kings presents an enormous opportunity for Fletcher to build houses.

So building houses, that’s it for you guys?

Well, get the rules right. There’s plenty of people who want to do it. I mean, again, if you think about some of the things that slow us down, it is the fact that the RMA is not as supportive as it could be. It has been the capacity within councils, it has been the ability to put in place all that infrastructure, but—

Yeah, sure. Now, one of the big leaders that is to do with housing is immigration. Record highs over and over. We all know the numbers. But look at 38,900 work visas in a year. Another 27,000 student visas. What do you say to those people out there in Auckland, where the schools are full, the roads are full, there’s no houses? What do you say to those people who say, ‘John, it’s time to turn off the tap.’

Okay, so, the biggest driver of migration in New Zealand at the moment is Kiwis not going overseas.

But these numbers aren’t Kiwis. This is 70,000 people who aren’t Kiwis. Do you want to control that or not?

Firstly, we can and we do control migration. In fact, one of the biggest complaints we often get is from employers who say, ‘I can’t either get skilled or sometimes even unskilled staff that I need.’

So you’re happy with the numbers? You’re controlling them?

Well, firstly, we certainly can and we do.

But you’re happy with migration?

There are always cycles, but my main point is we’re certainly happy that 30,000 to 40,000 Kiwis a year are choosing not to go to Australia on a net basis.

And we all are.

And there’s more people coming— Well, if you look at the others… If you go and look at the number of residents, people who take residency in New Zealand, that number is lower than it was a decade ago under the previous Labour government.

What about this figure? And you’re minister of tourism. How many work visas do you think we’ve granted for tour guides?

Oh, I don’t know is the answer, but there’s bound to be a few.

5917. Seems like quite a lot. Does that seem like a lot to you?

Oh, it’s a $36 billion industry or $32 billion industry, so, no, I think in the end it’s about whether we need those people. But you go down to Queenstown and the likes, or you go to other parts of New Zealand that are big in the tourism sector, and those places have been really, really struggling to get staff.

Very quick, because we’re nearly finished up. Andrew Little ruled out sharing prime minister with Winston Peters. Co-sharing, any of this sort of… Do you rule that out as well?

I don’t even need to answer that question, Paddy, I don’t think.

But what about deputy prime minister? Do you rule out Winston Peters being deputy prime minister in one of your governments?

Well, I’m not going to rule those sorts of things out.

So he could be?

Well, it’s not because of that. Because our position is we prefer to work with the partners we’ve worked with and provided very strong and stable government over eight years.

Yeah, but do you rule out Winston Peters as John Key’s deputy prime minister?

No, because in the end, in 2017, we’re going to have an election, and when we have that election, what we’ll have to do is I’ll ultimately put together a government. I can’t determine that. The people of New Zealand determine that. What I have a responsibility to do is to put together a government — if I’m in the position to lead the largest party and to lead those negotiations — then to try and make that work.  But I’m not going to say who’s a minister and who’s not or what role they have and what they don’t.

Now, before we go, we have a story up next about the Saudi sheep issue. Now, do you still believe that New Zealand faced a lawsuit from Sheik Hamood?

Firstly, there’s an Auditor-General report coming out, and that’s good because it will be a good opportunity for people again to see things.

But did we really face that lawsuit or not?

The cabinet paper that I saw indicated that there was a risk, and so that’s what the cabinet paper said, and that’s the advice that we take. But, look, actually, when you look at this guy — I mean, I don’t know every detail and every fact of things — but this was an investor in New Zealand who acted in good faith on the assurances he was made by Phil Goff in the previous Labour government, and they can run away all they like from it, but New Zealanders are usually good for their word. If they say they’re going to do something, they do it. And they actually told this guy — in fact, Phil Goff went out of his way not to give this guy the truth. That’s pretty bad faith. Someone has to resolve that issue.

And last on this issue, have you ever thought about restarting live sheep exports to Saudi Arabia? Just restarting. Not the breeding; the actual exports of them.

No, because I think, in the end, I don’t think that’s really where New Zealanders want to go. We do export cattle, and we do export sheep for breeding purposes, but not live—

Never consider it? Not on the agenda?

It’s not on the agenda.

Thank you very much, Prime Minister. We’re out of time.

Thanks so much.

Thank you so much for joining us.

Tune into NBR Radio’s Sunday Business with Andrew Patterson on Sunday morning, for analysis and feature-length interviews.