Sir John Key: Former Prime Minister on the GDP contracting 0.9%

Sir John Key says the Reserve Bank deserves much of the blame for the latest sharp drop in GDP. 

Our economy's contracted 0.9% in the June quarter. 

The Government says international turmoil and uncertainty over tariffs have driven the fall, which was much larger than expected. 

Key told Mike Hosking the OCR was also a major factor. 

He says two months ago he was criticised for calling for the OCR to come down 100-basis points, but that will probably now happen by Christmas. 

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Episode Transcript

Speaker 1 (00:00):
It's hard to hide from a number that bad, isn't it.
Zero point nine is not zero point three or anywhere
close to it. And what we felt in April and
May and June was in fact very real. The calls
were already out for the Finance Minister to quit. Sir
John Key is back with us. Good morning, Mike. Has
the government mister trick and could have should have gone
harder earlier.

Speaker 2 (00:19):
Look, there is saying that Ruth Richardson once had, which
was montary policy needs mates, and that was her argument
when she was really tightening up the economy, that the
Reserve Bank needed that support because they were in tendem
working with the government. I think what you've seen over
the last eighteen months or so is a government that

(00:40):
has been working hard to get the economy straightened up
after frankly the mess it inherited, but it hasn't had
a mate in the Reserve Bank. And the Reserve Bank's job,
very clearly over time has been to say in straits
need to come down. And I mean, look two months
ago I got hammereds are saying instracts need to come
down one hundred bases for as well. They came down

(01:01):
twenty five. They're going to come down another fifty. You
can put a ring around it in the next Montary
policy statement and they'll come down another twenty five by Christmas.
So the person that's not doing the job, or the
people that are not doing their job, are the Reserve Bank, who, frankly,
if they just walked around Auckland and Wellington for five minutes,
could have felt the fact that the government needed help

(01:22):
through Montreal policy.

Speaker 1 (01:23):
Right, So here's our registrates, here's your next problem. So
Luxeon's on this program a couple of weeks ago and
he goes at the the way you just have all
the op ed writers in the country start going, you
can't do that. It's independent. So what does a government
do when you've gotten competence not helping you.

Speaker 2 (01:41):
Well, I mean, I guess they've done the things they
can do. In the end of the Reserve Bank governor
has left, the Reserve Bank chairman has left. You know,
they only can do what they're able to do, which
is a point, and new governor make it clear that
they're frustrated by that. I don't think the government is
either trying to or needs to sit around and just

(02:03):
solely blame the Reserve Bank. I mean the Reserve Bank
pleys a role in this because anyone can tell you
that in straight they have been too high, particularly when
you look at as say the auk and Wellington economy
over the last week. While I think what the government
can do is pull the levers that are within its
control now, the bigger levers around how it spends money,

(02:24):
being a bit tighter with the economy, getting rid of waste,
fast tracking things like RMIN, all those good things that
they do, which by the way, take quite a long
time to flow through. They're doing those. But the bits
that they can do in the short term to help
support a lower monetary policy stance they are starting to do.
I mean these business visas high with visas, minor changes

(02:45):
they made to foreign buyersed ban, migration changes that sit
around those visas. Some of those things are really good
stuff and again they will flow through. So I'd sort
of say to you, look, there's quite a number of
different things going on. This is a very unusual period
in New Zealand history because this has been the one
time that you've seen a very significant pullback in housing

(03:08):
in Auckland and Wellington. So about twenty five percent in Auckland,
about thirty percent in Wellington and all of that, whether
all these people who hate housing and don't like in
all those argments. What that's done is it's had two things.
One that's slowed down the construction sect and you can
see those numbers yesterday. And the second thing is because

(03:29):
people feel like they're going backwards in their biggest assey,
it strips them of confidence. And that's my whole point.
I think the one thing the prime Is can and
will continue to do is try and talk about the
future because all these things are behind us. Actually what's
coming in front of us is a lot better. But
we need to get our mojo back. We need to
start feeling confidence again. It's the you know, whether a

(03:52):
government loosens migration and whether the Reserve Bank has re
stracts a little bit lower, they all count for a
certain amount, but what really counts is do we feel
like we're going forward? And if as a country you do,
we'll all start doing things again and investing in moving right.

Speaker 1 (04:07):
So to the poll this week that has a good
number of people blaming this current government for the economic woes.
The politics of it. You enter next year into an
election Douglas says, Sack Willis your prime minister, what do
you do.

Speaker 2 (04:23):
Well? First, don't lose your nerve. I mean, Nichola Willis
is by far in the whole lineup, the best person
to be Minster of Finance. She worked for me. I
know Nikola very very well, and she's outstanding, so she
is not blind to all of the challenges we have.
So firstly, don't lose confidence. The second thing I'd say

(04:45):
is don't lose confidence with the really good macro things
the government is doing. So yeah, if there are some
short term things that you can continue to do to
stimulate the economy, do all of those. But my point
to you would be when someone asks the pulses today, look,
the economy's bad, your jobs at risk? Are are you
going to blame? Well, by definition of course, you're going

(05:07):
to blame the government of today. Just don't forget that.
Next year when we have the ultimate poll called an election,
it's not actually about is the economy good or bad? Today,
it's about choice of who over the next three years
do you want leading the country. And frankly, given this
mess was delivered to us by the very same people

(05:28):
who lead the Labor Party today, and then throw it
a very radical marorw Party and a very radical Green Party.
You tell me why the economic cocktail that New Zealand
would be operating under would be anything other than catastrophe.
So I think when middle New Zealanders face that choice,
they will continue to give their support to the right

(05:49):
block of National New Zealand first and that well.

Speaker 1 (05:52):
I's appreciate your time. Having good weekend, Sir John Keith.
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