Empty rhetoric won't fix economy

BY COLIN ESPINER

Are we there yet?

Prime Minister John Key's goal of closing the income gap with Australia looks as far away as ever in the wake of the first 2025 Commission report.

In fact, it looks like going the same way as former prime minister Helen Clark's target of getting New Zealand back into the top half of the Organisation for Economic Co-operation and Development within a decade.

The problem with both goals - apart from their ambition - was the setting of a definitive, measurable target.

It is both admirable and stupid, because it is very easy for one's opponents to point the finger when things go awry.
You would have thought that National, which made a meal of Labour's quiet abandonment of its goal, would have known better to follow suit.

However, at least Key could blame ACT.
ACT's support agreement with National set a "concrete goal of closing the income gap with Australia by 2025".

At the time, the Government acknowledged this would entail a 3 per cent annual growth rate for the next 17 years.

One year on, that rate is up to 4.5 per cent - and climbing.

ACT leader Rodney Hide probably thought he had scored one of his many self-claimed coups over Cabinet when he got Don Brash appointed to head the 2025 Commission.
Certainly, Brash has the brains. And the credentials, as a former Reserve Bank governor, who has advised bigger and faster-growing economies than New Zealand's on how to lift their game.
However, what Brash does not have - and never did - is the political nous to sort the doable from the un-doable; the politically tenable from political suicide.
It was the same when Brash was National Party leader.

He would make reasonable suggestions about how to raise productivity or education standards and then follow it up by saying job-seekers should line up at the post office or beneficiary mothers who have more children should not get the domestic purposes benefit.

So the report Brash delivered, with 35 recommendations on how to close the income gap with Australia, contained the same mix of reasonable suggestions - trimming government expenditure, regulatory reform, greater use of private-sector resources in health and education - with politically indigestible recommendations such as raising the age of superannuation eligibility, near-flat tax rates, and cuts to welfare entitlements.

This made it relatively easy for Key and Finance Minister Bill English to dismiss the report out of hand.

English said it "read like an ACT party manifesto", while Key said he would be damned if he would "pull the rug" out from under struggling Kiwis.
Indeed, the Government's horrified reaction to the Brash report made it look positively warm and caring.

Which may well have been the intention.

However, it also did leave the question hanging: How, then, will we catch up with Australia?

Or, as the ever-polite but equally determined Brash put it: "There may be some other cunning plan - but I'm not aware of it."

Indeed, English was eager to point out last week that there was more than one way to skin a cat, but did not provide any alternatives.

Brash's report is not the only set of potentially unnerving suggestions being flung at the Government.

The Tax Working Group - possibly the greatest collection of financial chin-strokers ever assembled by a government - is due to report soon on tax- system reform suggestions.

While we have not seen the final mix of suggestions, ideas being bandied around include cutting income tax, raising land or property tax, increasing GST, and introducing a capital gains tax.
So far, English's response to the Tax Working Group's ideas has been rather lukewarm, but he may find the report harder to dismiss.

Indeed, the group is working hard to make sure that will be the case.
Besides the fact that it will be a less ideological document than Brash's one, there are only so many reports the Government can dismiss without the obvious question being raised - right then, what would you do?
Pressure is building on National, particularly from its business community constituents and those who voted for Key because of his election slogan "Ambitious for New Zealand".
One of the reasons National won so convincingly in 2008 was because it claimed New Zealand could, and should, be doing much better.

The other was that it also promised the public they would not be in for any nasty surprises.
Unfortunately, those two pledges are probably mutually incompatible, since the sort of step-change the economy requires almost certainly means taking a few risks and making some potentially unpopular decisions.
Historically, that has led to an early shower for political leaders who have tried this, as Key well knows.

The Prime Minister has sufficient political capital to make some bold decisions, but he is reluctant to spend it.
However, he may never have a better opportunity.

National's polling - and his own popularity - will never be higher.

And while no-one blames the Government for playing it safe during the recession, next year is likely to be a different story.

In a week's time, the Government will open the books for the half-year economic and fiscal update.

English has already warned that the numbers are not pretty, and further financial consolidation is required.

That means next year's Budget is likely to be largely an exercise in cost containment.
All well and good, but National cannot stop there.

If it wants to convince the public its 2008 election promise was anything more than empty rhetoric, then the middle year of the electoral cycle is the time to do so.
If it does not, it can be sure that Brash will pop up again this time next year to remind the Government that it still has not done anything to address the productivity gap.
And if the income gap does continue to widen, Brash will not be afraid to say: "I told you so."

Brash's ideas may be impractical, his analysis may be overly simplistic, and his solutions "too radical to implement" - as English bluntly put it.

However, National is now bound to come up with an alternative that works.

- © Fairfax NZ News