Surplus priority goes from comic to absurd

16:00, Jan 18 2013
John Key
The focus of John Key's government on returning to surplus is likely to generate perverse consequences for workers and businesses.

The aim of a return to Budget surplus by 2015 was always more political slogan than economic plan.

And Prime Minister John Key has consistently said the Government will not take stupid measures that would harm the economy in order to deliver on the target.

But with a new political year under way there is growing evidence the Government would rather look silly than accept the target is just not that important.

The rating agencies simply do not fine tune their judgment to the point where a few hundred millions of surplus or deficit, or a difference of 12 months, really matters.

When it comes to assessing New Zealand as a risk, lenders are similarly not as hair-trigger as that; the direction of fiscal policy is more important to them than achieving small surpluses by arbitrary dates.

The Government did hang its hat on the promised return to the black by 2015 during the 2011 election campaign, so it has become something of a yardstick of success, but the Gillard Government in Australia made the call before Christmas that pursuit of its similar aim would do more harm than good.

But as Mr Key and Finance Minister Bill English look to a difficult economic year ahead, where their handling of the economy and, in particular, job growth will be centre stage, efforts to preserve the promise of a surplus is morphing from harmless comedy into theatre of the absurd.

More to the point, it is generating perverse consequences - admittedly only at the margins so far -  for the economy and for workers and businesses.

The first and most blatant was the so-called ''Gerry-mander'' just before Christmas; Transport Minister Gerry Brownlee's eleventh hour decision to hike road user charges and lift the petrol excise by 9c in the next three years that delivered the knife-edge $66 million surplus forecast for the year to June 2015. Without it Treasury would have tipped a deficit of more than $250m.

No regulatory impact statement (RIS) - officials' formal assessment of the change - has been issued yet on the transport changes. But a report on ACC levies - also crucial to the survival of the surplus forecast - underscores how the Government has opted for petty measures to preserve the surplus even if they are at odds with its own policy aims.

In the ACC statement  Business, Innovation and Employment officials warned that even by implementing the levy cuts recommended by ACC the corporation was targeting a funding position $5.5 billion higher than the amount it expected to pay out in levies.

Holding rates unchanged, as the Government opted to do in mid-December, would push that over-funding position even higher. Officials also warned that the cut recommended by ACC represented a significant transfer of revenue away from levy payers and would harm the Government's own priorities for jobs, economic growth and reducing costs to business.

They also pointed out that while keeping levies stable is desirable, setting them too high in the short term will only lead to bigger changes in future years.

That advice comes with bells on when applied to the Government's actual decision to eschew all levy cuts this year.

If it is lucky the Government will not face more drastic choices to protect its surplus talisman.

The economic mood has been more upbeat since Christmas, although Mr Key is eyeing 2013 nervously aware that since the Global Financial Crisis an early flush of optimism each year has often faded into disappointment by the second half of the year.

But if the Government's challenge this year is to convince voters it has a larger economic vision than a return to a (marginal) surplus, a fillip from the Christchurch rebuild, some micro-economic tinkering and the asset sales programme, Labour's challenge is more daunting.

The electoral mathematics are not all bad news; Labour plus the Greens are polling close to National's level, though NZ First remains the wildcard. But Labour wants to beef up its share of the Centre-Left vote, making it less reliant on NZ First and giving it a stronger hand in any government-formation talks with ambitious Green co-leader Russel Norman.

It desperately needs to turn a positive end to 2012 - mainly due to leader David Shearer's tough line with rival David Cunliffe and a popular new policy on housing affordability - into a sustainable improvement in the polls.

The scheduled leadership vote should not be much of an obstacle, and Mr  Shearer is set to be endorsed unanimously and unopposed. But symbolic of Labour's bad luck and poor planning, the vote will be taken on February 4; the first caucus in February as set down by the rules, but a week after the party's first caucus of the year and after Parliament has resumed.

Mr Shearer's ''not the state of the nation'' speech on January 27 will be his shop window for the year ahead. He will continue to hammer the ''hands-on'' government theme that worked well for him in his key Labour Party conference speech.

He is likely to highlight measures to boost the role education plays in readying teenagers for the workforce.

Meanwhile, both leaders plan to reshuffle their teams. Both have difficult calls to make, but again Mr Shearer's challenge is greater. He needs to cull some old stagers and promote new blood to emphasise a break with Helen Clark, but two of his best performers - Annette King and Phil Goff - were pivotal in the Clark years. It is understood he wants to bring Shane Jones back to the front bench but the crucial auditor-general report into the Bill Liu affair is still in the pipeline, making it a tough call.

In Mr Key's case the election of a new Speaker - likely David Carter - will clear the way for the return of Nick Smith. But Mr Key has made it clear he intends to tough out the criticism of Education Minister Hekia Parata and keep her in the role.

It is a blunder waiting to be exposed.

Dubbing her a great communicator is the triumph of hope over experience and suggests he is as blinkered to her shortcomings - and the damage being done by her to confidence in the sector and among parents - as the Government at large is to a 2015 surplus.


The Dominion Post