Brownlee's excise won't fix deficit

Let's call it the "Gerry mander".

That wonderful moment on Tuesday when Minister of Transport Gerry Brownlee slipped out the decision to hike petrol excise by 9 cents over the next three years to rescue the Government's books from sliding into the red in 2014-15.

Of course, Mr Brownlee and his fellow ministers made the ritual attempts to justify the increase on the need to fund the Roads of National Significance.

But the timing was just too suspicious for that; a decision made by the Cabinet on December 3, exactly a week after the Treasury's cutoff for its fiscal forecasts (so how did that work?) and only a week before the text of the half-year economic and fiscal update was finalised.

Finance Minister Bill English ducked and weaved, but finally confirmed that "without the changes in transport, we would have fallen short of our target".

As it was, even with the extra revenue - more than $300 million in 2014-15 - the Treasury delivered a forecast surplus of just $66m, down from the already narrow $197m forecast on Budget night.

As we head into the Christmas break, the unders and overs that produced the thinning of the surplus tell the tale of how the economy is faring - flat, but at least we're not in Europe.

The biggest shift is in revenue, marked down by $2.1 billion since May due to the softer outlook for growth. The Treasury is now looking at a long run average of 2.5 per cent annual growth against 3 per cent just six months ago. But that is still robust by comparison with the OECD average of 1.5 per cent.

On the upside was a $500m saving from welfare payments and $200m from lower financing costs - in both cases influenced by the lower interest rate outlook as the economy sagged. Another $500m came from a combination of the fuel excise rise and the decision not to cut ACC premiums - both tax increases by a Government keen to meet its political commitment to get the books back into surplus.

The Canterbury rebuild is also proving problematic, and that is a major driver of economic growth. The estimate of the damage has risen to $25b. The cost of fixed capital investment in repairs is $30b - the Government's share is $13b.

But the Treasury says "resource constraints in the wider economy" means it is expecting only just over half the rebuild will happen by 2017. Most of the residential rebuild - equal to about 1 per cent of gross domestic product - will be completed by then, hitting its peak in 2015 and 2016. The bulk of the infrastructure rebuild will be finished by 2017.

But only $3b of the commercial and social investment is expected to be complete by then, suggesting roughly four-fifths of the commercial and social investment will still be outstanding in 4 1/2 years - a sobering thought for the Christchurch CBD.

All of which adds up to a problem for the Government and a big political call.

At what point does the electorate's willingness to blame the global economy over the Government start to falter? How much patience is there among those Christchurch voters who swung behind the Government in 2011? When will voters in general tire of simply hunkering down for the long haul - the Kiwi "resilience" that Mr English is fond of praising - and start looking for a way out of grumpy growth? Especially if the Government starts paring back its $800m allowance for new spending as it contemplates a decade of restraint.

This week Mr English was still beating the drum for "sensible responsible policy" in contrast to the "untried economic experiments" of the Opposition. But while the 2014-15 Budget surplus has attracted all the media focus, for obvious reasons, there are precious few signs that the Government is delivering on its aim to "rebalance towards international sectors of the economy".

The current account balance - the sum of New Zealand's transactions with the world - is forecast to steadily rise towards $16.3b by 2017, lifting from about 5 per cent of GDP now to 6.5 per cent in four years' time.

Former prime minister Sir Robert Muldoon used to say the average voter wouldn't know a deficit if they tripped over it. That has certainly changed, but is probably still true of the current account.

It has long been the Achilles heel of the New Zealand economy, especially since the global financial crisis.

It is watched far more intently by the rating agencies and foreign lenders than if the Government achieves a surplus. And it will take a lot more to fix that than an eleventh hour tax tweak by the transport minister.

The Press