First hiccup of the year for Government

BY COLIN ESPINER

OPINION: If Prime Minister John Key was superstitious, he might have felt the odd twinge of misgiving over the postponement of a visit by United States Secretary of State Hillary Clinton.

Clinton's call was to be the first set piece of the political year. It would have been an opportunity to get Key on the front pages with the world's most powerful woman while Labour leader Phil Goff was still in short pants at the beach.

Indeed, it would have been an excellent start to 2010 for the Government, regardless of whether or not anything of substance was actually announced as a result. It could have served to neatly highlight the growing strength of the relationship between New Zealand and the US, and provided a chance for Key to remind Clinton of our recent military contributions in Afghanistan.

At least Key was still able to have a beer and a barbecue with the grandson of that other relatively powerful woman, the Queen. But while a visit from such an important royal as Prince William would once have been a major coup, it was merely a consolation prize in an age where political power matters more than blue blood.

The best-laid plans and all that – the Haiti earthquake provided New Zealand with a reminder of its small place in the global scheme of things.

And then there was a reminder of our presence in Afghanistan of a different kind – crack SAS soldier Corporal Willie Apiata VC's face all over the front pages of the nation's newspapers.

Key had no choice but to confirm Apiata's return to Afghanistan once the secret had leaked out overseas. But the fuss the publication created is another example of the secretive approach New Zealand takes towards deployments of its special forces overseas compared with other nations, and it's something the Government is going to have to reconsider at some stage.

As it was, the first announcement of any note to come out of the Beehive this year was the latest instalment in the "lock 'em up and throw away the key" approach that constitutes National's law and order policy.

The implementation of the 2008 election pledge to make those convicted of a second serious offence serve their full sentence without parole was always going to be tricky, particularly when it had to be welded together with ACT's similar "Three Strikes" policy.

The resulting "Max" legislation is probably the best result the Government could have obtained considering what it had to work with, although it has deliberately underestimated the number of additional prison cells that will be necessary as a result.

It has also brushed several practical and moral dilemmas of the proposed law under the carpet for the time being, including whether New Zealand is really ready – or able – to lock up murderers for the term of their natural life.

These issues might get an airing when the bill is presented to Parliament, assuming Labour has the stomach to fight what will no doubt be a popular piece of legislation with the public.

In reality, of course, it will probably be a decade or more before the law is tested, since most of the trigger offences require a term of at least seven years imprisonment before the no-parole clause can be enacted.

Judges will also be given the power to veto the mandatory loss of parole if such a sentence would be "manifestly unjust". There is also the distinct chance that a future government will overturn the law, probably before its first test.

Nevertheless, a showy piece of law and order legislation was an apt beginning to National's most crucial year in its first term. The Government has made crime and punishment a central theme of its tenure and there's no doubt it is popular with the public – even if it does nothing to reduce the crime rate.

Cracking down on crims might keep the Sensible Sentencing Trust happy. However, it is not going to ensure National victory next year. It doesn't do anything to lift New Zealand's woeful rate of productivity, reduce the level of unemployment, or make any of us feel any wealthier.

That is the key challenge facing National this year, and it is on this measure – its own target – that it will be judged.

Last year ended with the usual flurry of reports and recommendations to the Government on matters fiscal and economic, some of which it can safely ignore – such as Don Brash's 2025 task-force report – and some of which it can't.

The report of the Tax Working Group, signalled before Christmas and released publicly last week, is one of those. While Brash's group made recommendations that were politically untenable, such as slashing social spending and retrenching the welfare state, the tax task force headed by Wellington academic Bob Buckle offered suggestions that are more feasible, if challenging nonetheless.

That Buckle's group recommended changes to the tax system was no surprise – that was, after all, why it was established. The surprise was its prognosis. The tax system isn't just sick, Buckle's group says, it's terminally ill. To steal a phrase from Finance Minister Bill English, "a little tinkering around the edges ain't going to fix it".

Buckle's group essentially found our tax system is unfair, allows the rich to avoid paying their fair share, and is skewed far too much in favour of property at the expense of other forms of investment that arguably generate more wealth.

It also nods towards our appalling savings habit as a country, pointing out that we have relatively light consumption taxes while punishing those who save and invest with much higher tax rates.

If you're thinking all this sounds like another way of proposing a hike in GST, you'd be right. Indeed, English has confirmed that raising GST would be one "revenue neutral" way of allowing National to continue with its postponed programme of personal income tax cuts.

In one sense, it is robbing Peter to pay Paul, with Peter tending to be Paul's poorer cousin who can't escape GST but doesn't earn enough to save or invest anyway. Raising GST would also be hugely unpopular with the public.

There are always winners and losers with changes to the tax law, though, and having received such a dire assessment of the health of our tax system, English is now bound to act.

Ironically, what started out as a relatively minor part of the Government's overall policy agenda has become the first major test for National in 2010.

If there was one accusation that could be fairly levelled at it during its first year in office, it was a reluctance to take any big decisions.

Now, the Buckle report's recommendations loom as a potential centrepiece in English's May Budget. News that house prices are on the way up again, potentially fuelling a new property bubble, gives National further impetus to make meaningful changes.

Cabinet will already have received the first broad-brush outlines of what English is proposing, although he has until April to lock down his plans.

Exactly how far English is prepared to go will be something of a litmus test of the political courage of this administration.

- © Fairfax NZ News