It's business time for Key's new Government

POLITICAL WEEK - By TRACY WATKINS

It was a top aide to Barack Obama who said recently: "Rule One. Never allow a crisis to go to waste." By that, he explained, he meant that a serious crisis provided "opportunities to do big things".

Unlike our Government, Mr Obama still hasn't got his feet under the table – but he and his people are already working on a massive recovery plan, on top of those other massive recovery plans that the United States has thrown on the fire of the worst financial crisis in 70-plus years.

The fact our Government is sworn in and officially has its feet under the table may be illusory – the pace of government formation was so fast that understaffed ministers' offices are still trying to catch their breath – but it is not altogether clear yet that any "big things", or even anything particularly new to suit the times, has yet made it on to the agenda.

The fiscal stimulus and economic recovery plan talked up by Finance Minister Bill English last week is in fact a shrunk-down version of what National initially had in mind when the scale of the disaster confronting the world was, if not in its infancy, then still unfolding. We know that because when the Treasury opened the books on a disturbingly grim set of forecasts way back in October – before things really hit the skids – Mr English and his team spent the next couple of days furiously trimming National's tax cut package and slowing the rate of infrastructure spending, the two big-ticket items in its election manifesto.

That they had cut their cloth to suit the times was how National sold the package then; it feared – probably justifiably – that the original, more ambitious, package it had in mind would be written off as reckless and even downright dangerous. It's curious, however, that the same package is now being sold as an economic blockbuster.

Since that package was announced, National has bolted on a transitional assistance package for people who lose their jobs, and supported the moves to shore up banking confidence with the banking deposit guarantee scheme.

Yet an awful lot of water seems to have surged under the bridge since; the sorts of figures being thrown at the "recovery" in the US, for instance, are eye-watering in their scale. In Britain, the same "damn the torpedoes, full steam ahead" mindset also prevails.

As Guardian writer Michael White notes, caution is the new recklessness. Which may explain the almost breezy way in which British Chancellor of the Exchequer Alistair Darling explained he was "almost certainly" going to have to follow up his $56 billion recovery package of last week with another dose in a few months. And this from a man whose latest package alone is predicted to push net public debt to a staggering 57 per cent. We're on easy street by comparison; the next set of forecasts are tipped to show debt at about 28 per cent.

The rest of the world, in other words, has decided to "go defcon" – while on our side of the globe, despite the "whatever it takes" promises from Prime Minister John Key and Mr English, there has only been cautious talk about bringing forward small infrastructure projects, and a whiff of "awaiting developments" in the air. Even the much- touted December economic stimulus package has had to borrow heavily from Labour's October 1 tax cuts, which have already been banked, to arrive at the $7 billion figure that is being tossed around as a sign of willing on the Government's part to join the "fiscal stimulation" party.

Maybe it's like the old saying about the importance of keeping your head while others around you lose theirs. There are, after all, some factors in favour of the Government's caution; who would have thought, for instance, we would be counting our blessings for suffering punishingly high interest rates all those years. We will get much more bang for the buck out of falling interest rates than other comparable Western economies.

In terms of economic stimulus, the rapidly falling interest and exchange rates alone are, literally, worth their weight in gold.

And, as Mr English points out, our politicians were, in a sense, ahead of the game, because the timing of the election campaign forced them to fire the big guns early. The risk is that the lengthy gap in between could start to look like a vacuum. And events have moved so rapidly that assumptions made on the campaign trail may have been overtaken.

But along with the opportunity to "do big things" that the Obama team talks about, comes the opportunity to fall further and harder. There is no doubt where minor Government ally ACT would see the opportunities, for instance – in ACT's case more privitisation, slashing government spending and big tax cuts.

But National's talk so far of curbing government spending has been cautious – and while it seems increasingly likely that some hard decisions will have to be made in light of the deteriorating position, it has ruled out the sort of upheaval that a harsh prescription like ACT's would incur. The other option, to throw a far bigger package at the recession than the one National entered the election campaign with, would be in line with the current international fashion – but it comes with no guarantee of success either.

With Mr Key out of the country for Apec in his first week on the job, today – when he leads his first Cabinet meeting – is the first real day of the new Government getting down to business.

Events on the international stage, including the Air New Zealand disaster, may overshadow it – and the report card for the new Government, to date, on its response to those disasters in its first week is mixed. After a slow response earlier in the week to events in India (again, we can blame the fact that ministers' offices are still only on skeleton staff) it had stepped up a gear by the end of the week in responding to the Air New Zealand disaster.

But those are matters beyond the Government's control; it is on how it responds over the next few weeks to the more pressing matters within its control that will decide whether the honeymoon is a long one or cut short prematurely.

- © Fairfax NZ News