Hive News Tuesday: Why John Key resigned, what his legacy is, and what happens next

John Key emerges from the National caucus room the morning after his shock resignation. Copyright Lynn Grieveson / Hive News

Good morning all after the ultimate bolt from the blue side of politics.

No one picked it and it has completely transformed the political landscape. For the first time in a decade, it's not clear who is in charge and who is likely to win the next election. We will know more later today about whether Bill English will be the next Prime Minister, but all bets are now off for the election next year.

Now the dust has settled somewhat on the first voluntary and totally unexpected resignation of a New Zealand Prime Minister in the prime of his popularity, it's worth trying to answer a few questions about why John Key resigned, what happens next and what his legacy might be.

Why did John Key resign?

Press Gallery reporters wandered into the Beehive Theatrette shortly before 1 pm yesterday expecting the usual post-cabinet news conference, if slightly earlier than the normal 4pm start time.

Key began the news conference with a speech that started with an assessment of his 10 years in politics and his eighth anniversary as Prime Minister. Within a few sentences it became clear, something monumental was happening. It wasn't until the 22nd paragraph that it became absolutely clear he was resigning to spend more time with his family.

"This has been the hardest decision I have ever made and I do not know what I will do next," Key said.

"But for me this feels the right time to go," he said.

"It would be easy to say I have made this decision solely to rediscover the personal and family life I once had, and that is a factor, but it is one among many."

Key said he had seen many leaders who failed to go out on a high.

"I can understand why. It is a hard job to leave. But, for me and the National Party, this is a good time to go. Party membership is high and the party is well-funded. The caucus is talented and eager to serve, and one of the achievements of which I am proud is having built with my colleagues a Cabinet team that is capable, committed and cohesive," he said.

The immediate speculation was that his wife Bronagh had asked him to step aside, which he denied in the news conference.

"No, she's been amazingly supportive and if I really wanted to stay for another term she would back me. But I just feel it's been a decade of a lot of nights home alone for her and the time is the right time for me to come home," he said.

Key described how he had made the decision while on the way home from his visit to the UN Security Council in September with Bronagh.

"We had gone away to Hawaii before that and to be frank, Bronagh and I had a pretty long discussion about it. I said to her, look, maybe we will just take one last look at it when I am in New York," he said.

Key was asked by both Paddy Gower and Corin Dann in New York whether he would serve out a full fourth term. He said then that was his intention.

"You guys did all ask me in Q&A and The Nation whether I would absolutely stand for a fourth term, and for a full fourth term, and one of the things I said to Bronagh on the way home was I just don't feel comfortable looking down the barrel of the camera and not being honest and if I am going to stay 6 months or 12 months I run the risk of doing to National what happened in 96 - 99, which is there was a chance of leadership change quite shortly afterwards that destabilised things and it left the party in much worse shape," Key said.

He again addressed the speculation directly in an interview with Claire Trevett published in the NZ Herald this morning, saying: "The marriage is rock solid, the health is absolutely tickety boo. Give the doctor a ring."

So what happens next?

Key was clear in his speech and the news conference that he would vote for Bill English as National Party leader if he put his name forward.

He rejected any suggestion he was pre-empting the National caucus, or that English was not up to the job, given his failure as National leader at the 2002 election.

"No, because in the end caucus will make a call and it may well be contested as a leadership or deputy leadership, but I didn't want ambiguity on my part that you guys ask me, and the country asks me," Key said.

"Secondly, I have worked with Bill for ten years and we have been an amazing leadership team. We've had a great working relationship and to me it would feel a little bit off if I wasn't backing the guy that I have stood alongside for a decade," he said.

"If I didn't think he was right to be the Prime Minister, then I shouldn't have thought he was right to be the deputy. Things are a lot different than they were back in 2002 when Bill was last leader."

Key said the time wasn't right for English in 2002.

"When Bill was leader 15 years ago it was a different time in the cycle of National. It wasn't doing what it's doing now. Secondly, our party was in a very different shape back then. We are well-funded now, we have got a big support base," he said.

"And politics is all about cycles. Sometimes you become the leader of a party and the cycle isn't good. If you asked Phil Goff if he would be a good Prime Minister he would tell you he would be, but the time wasn't right and that might be true of so many others."

English says wait a day or so

For his part, Bill English also said he was surprised and disappointed by Key's decision, even though he knew it was possible in September when Key told him about it.

"I was surprised back in September, certainly, that he was considering it," English told a news conference in Parliament shortly after 3pm.

"And it's a sort of thing which, because it hasn't happened before, you can't quite believe it until it happens," he said.

"I can't recall a Prime Minister who has taken this kind of step while they are doing as well as they have ever done and while the government's in good shape, they have decided to step down. So it turns out he is as remarkable as you might think."

English also surprised a few people by not immediately putting his hand up for the job, saying he wanted a day or so to consult with his caucus and family.

"The caucus has only known about this for two or three hours and I think we just want to give ourselves a bit of space," he said.

"I personally would like to be able to talk to members of caucus, talk to my family in considering it. I certainly appreciate John's endorsement."

Asked when he would make his decision, he said: "I'll be discussing the prospects and what the best result is for the caucus over the next 24 hours."

English was however insistent that any decision was likely to be quick and not divisive. He used the words cohesion and cohesive six times in the news conference, suggesting he expected the caucus to coalesce behind a candidate before next Monday's meeting to vote on the next leader.

"This is a caucus who have seen the political success of unity and cohesion and John Key has put a premium on that. I think it is now part of our culture and I'd expect that the issue of leadership would be dealt with internally because we can see that stability's important," he said when asked about the prospect of a contested leadership vote.

Pressed again on whether he expected the Caucus meeting to simply endorse a pre-agreed leader, he said: "Ultimately that is a matter for the caucus. As I have said, we have put a premium on stability and unity and I don't think you should expect to see the kind of public brawling that you see over leadership changes in opposition. The country benefits from stable, clear direction in government and caucus understands that and I think will want to deliver that result for the country."

The early signs are that caucus may well fall into line behind Key's preference and English's early indications.

Steven Joyce told Duncan Garner last night that he had previously had no ambitions to be Prime Minister, although he did not rule out putting his name forward. Judith Collins appeared more open about her ambitions in her chat with Garner, saying she would not rule out going for the top job, although she is far from the cohesive picture of stability mentioned by English.

English is the most popular candidate among the public. A UMR poll of 1,000 New Zealanders taken between September 27 and October 14 found 21% preferred English when asked who they thought should replace Key if Key resigned. It found 16% preferred Joyce, 11% preferred Bennett and 6% preferred Collins.

However, English was challenged on whether his failed leadership ahead of the 2002 election -- the worst result for National in its history with 20.93% of the vote -- disqualified him for the job.

"You learn more from losing than you do from winning, and in the last ten years I have had a masterclass everyday from John Key about how to do politics," he said.

There are few National MPs left from 2002, besides English himself, and none on the back-benches. The only survivors of that crop of National MPs who are standing again next year are Collins, Murray McCully, Key, Gerry Brownlee and Nick Smith.

We should know by early this afternoon whether English will run and become Prime Minister. If he does, much of the speculation centres around who will be his deputy and finance ministers, with Steven Joyce and Paula Bennett seen as candidates. I'd be very surprised if English was not the defacto choice by the end of the day.

So what is John Key's legacy?

Political legacies are hard to measure in hindsight, let alone in real time, but John Key's economic legacy can be measured right now just by looking at what he judges as success -- wealth and incomes.

Key said yesterday he thought his greatest success was the Government's economic leadership in tough times and that the economy was growing, creating jobs and building Budget surpluses.

It is true the economy is growing at an annual rate of over 3.5%, which is one of the fastest growth rates in the developed world. The economy created 179,000 new jobs in the last two years and is pumping GST and income tax revenues into the Government's coffers at such a rate that Budget Surpluses are "hockey-sticking" up, as Key said last week. He also said last week they would be big enough for voters to "have it all" in the form of extra social spending, tax cuts, quake rebuilding and debt repayment.

All this economic vigour came after the worst Global Financial Crisis since the 1930s, the most damaging earthquakes in our history and, just recently, a prolonged collapse in the price of our biggest commodity export. Yet gross weekly earnings are growing at more than 5% per annum and have been for almost three years. Unemployment just fell to 4.9%, the lowest point since Key took office in the fourth quarter of 2008.

The benefits of all that income growth haven't been spread completely evenly, but they are being spread much more evenly than many think, and much more evenly than in most other countries. Income inequality has been broadly unchanged over the last decade. The retention of Working For Families, increases in the minimum wage in line with the average wage and the rise in New Zealand Superannuation in line with average wages has meant pensioners and working families in their own homes have broadly benefited over the last decade. Much of that wage growth has been real because inflation has been very low and borrowers have done extremely well because interest rates have fallen so far and stayed that way for almost all of Key's eight years.

There's three big 'buts' to this picture.

Key can't claim all of the credit and he has acknowledged that Bill English was his key partner ensuring the Government did the right thing and kept spending money hand over fist in the depths of the GFC and after the Canterbury earthquakes. Other flavours of National Governments might have taken a much drier fiscal stance and made the GFC much worse than it was. Jim Bolger chose Ruth Richardson and she made the 1991 recession worse than it should have been with benefit and other spending cuts that worsened inequality in a way that no one has yet been able to reverse. Even though Key did not run economic policy directly, his close and harmonious partnership with Bill English can be given some of the credit for the economy's relative stability and strength since 2008.

But not all of it. Some of it was accidental, and some of the credit should be given to the Helen Clark-Michael Cullen partnership of the previous nine years, which was very similar in its cohesion and stability to the Key-English one. New Zealand benefited hugely from the Free Trade Agreement with China and China's decision to spend like crazy on infrastructure as soon as the GFC started. That stopped Australia from having a recssion and created hundreds of millions of new middle class consumers for our milk, our tourism and our international education. The structural fall in global interest rates and inflation in combination with very little net Government debt in 2008 also helped cushion New Zealand from the worst effects of the GFC. It allowed English to borrow heavily to cope with both the GFC and the earthquakes without much pressure from either ratings agencies or voters.

The second 'but' is the quality of that economic growth, and in particular the 'gross' nature of it. Gross weekly wages have risen more than 5% per annum for the last three years, but in large part because more people are working, and many are working longer hours. Migration and an increase in workforce participation, particularly of those aged over 65, has driven much of that increase. Real output per hour worked, which is the best measure of the production growth needed to grow incomes sustainably, has been flat since 2011.

The third 'but' is Key's failure to act on his own warnings in 2007 of a crisis in Auckland housing affordability because of a lack of housing supply. Auckland house prices have risen since Key's election, which at times he has been ambivalent about, noting voters actually like their house prices to rise and certainly won't accept falls. He soft-pedalled on action to address Auckland's housing shortages as soon as prices briefly fell in 2009 and didn't refocus on it again until just before the 2014 election, when his Government's actions may actually have worsened the problem by subsidising first home buyers. He certainly did not address the underlying tax advantage for leveraged rental property investors in any substantial way, and it's only now with the urging of Mr English is the Government starting to crank up its own sources of housing supply.

Key's legacy is sweetest for property owners, who saw the values of their homes rise NZ$400 billion to almost NZ$1 trillion on his watch, while the cost of servicing their mortgages as a percentage of disposable incomes has fallen almost 40%. But renters and aspiring home owners have not benefited from the Key era. They have gone backwards. Their housing costs are now rising faster than their incomes, particularly if they are single, on benefits, or have insecure and poorly paid work. The poorest 40% of the population saw their housing costs rise substantially under Key, and faster than than their incomes.

The right-wing think tank, the New Zealand Initiative, described that legacy best in a report in October on inequality.

"There is a massive inequality concern that is rightly troubling many New Zealanders: housing. In short, New Zealand’s ‘inequality crisis’ is really a housing crisis," wrote the NZ Initiative's Bryce Wilkinson and Jenesa Jeram. "While incomes have risen for high and low earners, the rising cost of housing especially hits the poor."

Bill English has been the loudest voice in the Government in recent years about how fast-rising housing costs are driving child poverty and increase the Government's costs. If he becomes Prime Minister for any length of time, he will have to deal with his predecessor's NZ$400 billion legacy of higher house values and housing costs. And, somehow, he will have to restart growth in output per hour to create a real economic legacy.

Tweets of the day:

A November 7 tweet from Donald J Trump , who last night appointed Ben Carson his Housing Secretary:

With Ben Carson wanting to hit his mother on head with a hammer, stab a friend and build Pyramids for grain storage - don't people get it?

Matt Nippert:

Meanwhile, in a concealed bunker in Christchurch, Aaron Gilmore senses an opening.

Have a great day

cheers

Bernard