Fran O'Sullivan on business

Business analysis and comment from Herald columnist Fran O'Sullivan

Fran O'Sullivan: Key sidesteps that old, old problem again

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Prime Minister John Key must start addressing the issue of of rising National Superannuation and healthcare costs past 2020. Photo / Greg Bowker
Prime Minister John Key must start addressing the issue of of rising National Superannuation and healthcare costs past 2020. Photo / Greg Bowker

John Key's Government would rather play the game of "pass the fiscal time bomb" than confront the real financial pressures that will beggar future New Zealand generations.

That's the harsh takeout from the Prime Minister's decision to (yet again) put off the day when a New Zealand Government has to foreshadow the introduction of policies to deal with its long-term liabilities.

On Monday, Key acknowledged that the ageing population would have to be addressed sometime down the track (the topic had, after all, dominated much of the post-Budget debate on weekend current affairs shows).

But he reminded journalists his Government's goal was getting its balance sheet into a position where it could deal with rising costs.

"Our focus is really on economic growth and lifting the economy," he said.

The Prime Minister went on to acknowledge that while the Government did need to plan for the impact of rising National Superannuation and healthcare costs past 2020, that did not need to happen now.

Key is being a tad disingenuous.

There is no reason why his Government cannot deal with the here-and-now realities of getting its Budget back into surplus and at the same time foreshadow its intention to launch a full debate to try to build a consensus on the suite of policy options to defuse the fiscal time bomb.

The two are not mutually exclusive. Any competent Government has already foreshadowed the necessity to lift the age of eligibility for Government-funded superannuation, or is at least debating the various policy options in this area.

Focusing on the "here and now" at the expense of the long-term may be a winning policy in forex dealing rooms, or within companies that are focused on posting top-notch quarterly results. But as Key - and sensible company boards know - the piper ultimately has to be paid. Maybe not on their watch but on someone else's.

If the long-term impact of failing to provide for funding shortfalls or additional spending pressures is ignored, it just adds to the trauma of those left holding the "fiscal timebomb parcel" when the music stops.

Let's face it, 2020 is just eight years away.

A lot can happen in eight years.

In that period Helen Clark's Labour administration expanded government spending to unsustainable levels by introducing Working for Families and making student loans interest-free. Key's Government went on to slash income taxes but without making significant compensatory expenditure cuts. We've also had the Canterbury earthquakes, which have taken another big chunk out of the Government's revenues. The Government will have borrowed an additional $71 billion by the time it posts another Budget surplus.

All this in eight years.

It's hard to believe the Government is prepared to sit on its hands until the 2014 election, by which time 2020 will be only six years off, let alone duck the issue until/or if it gets a third term in Government.

New Zealanders are not stupid. They know Finance Minister Bill English's Budget continued to moderate the worst effects of the post-global financial crisis environment. But the failure to confront the long-term fiscal realities took the shine off English's fourth Budget.

English knows it is obvious that the fiscal demands placed by an ageing population - with all its associated superannuation and healthcare costs - require a policy response. But because of the Prime Minister's obduracy he has been placed in the awkward position of having to defend the indefensible.

Hence it is the Treasury which has established a panel to "test its analysis of the Crown's long-term financial challenge" - rather than English himself.

Victoria University's pro vice-chancellor Bob Buckle (who is also dean of commerce) has been appointed as new panel chairman.

Ostensibly, the panel of independent experts' role is to help ensure the Treasury's next Statement on the Long-term Fiscal Position is robust and provides a range of viable options for managing the Crown's financial position in a way that protects the interests of New Zealanders now and in the future.

"This process draws on some of the experiences of the Tax Working Group," says Buckle, who was chairman of that group in 2009.

"It is intended to bring together people with a range of experiences and skills to provide a challenge to Treasury and ensure it considers a range of options."

The panel meets monthly from August to November.

Members will then provide their own views and observations of key issues, options and potential trade-offs at a conference jointly hosted by Victoria University and the Treasury in December.

That conference will inevitably deliver a wakeup call to the Key Government.

It will also require Key and English to direct a policy response - rather than a new round of pass the fiscal timebomb around another time.

- NZ Herald

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