Thomas Pippos: Slow and steady may yet win the race

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This is about a journey where there are no easy solutions, short cuts or even guarantees.

Finance Minister Bill English. Photo / Mark Mitchell
Finance Minister Bill English. Photo / Mark Mitchell

Large diametrically opposite numbers collide to create a Budget surplus or deficit. This year is no different.

The results are a better than expected Budget deficit of $6.3 billion for 2013, moving down to $2 billion in 2014 and potentially crossing over to a razor thin surplus in 2015 - a journey with markers trending the right way - not a destination as such.

In fact, Bill English could have justifiably come close to smiling as he delivered his fifth Budget, still on course, ahead of the 2014 election year.

And in many respects he would have had good reason to; the economy is growing, business confidence is at its highest level in three years, unemployment is falling, interest rates are low, the Mighty River Power listing was successful, the Meridian listing has been announced, and running tangible surpluses may shortly be a reality.

All this in the construct of the global financial crisis and the Christchurch rebuild that is now estimated to cost the Government $15.2 billion - with the total cost now estimated to be $40 billion.

Does this mean that everything is well? Well, no.

What it does mean is that the Government has the capacity to continue down the next part of their economic journey.

The dollar is still an issue, the economy hasn't yet rebalanced, funding superannuitants remains largely unaddressed, and savings still need to grow.

This is about a journey where there are no easy solutions, short cuts or even guarantees.

This Government's plan seems largely more of the same, driven by the belief that slow and steady will win the race, and punctuated with the odd ideological twist to remind us it is a centre-right government, such as a continuation of the PPP (public-private partnership) programme and the mixed-ownership model. The medium term focus is to repay public debt, which will be about $70 billion.

A Labour-led government on the other hand would likely promote greater government intervention in matters, a further change to the tax mix and further growth in the public sector. Active measures would also likely be taken to reduce the relative value of our dollar, presumably by just printing more of them.

These measures are all targeted at accelerating the rebalancing of our economy - a target shared by all, rather than an ideological view held by some.

Time will ultimately tell which approach is favoured by the populous. In many respects it will be a question of trust. Who do people most believe can take New Zealand closer to their view of Nirvana? Juxtapose now the Australian Budget - how things can go so badly wrong and the tolerance of the voting public.

What's happening in Australia reinforces the importance and difficulty of choreographing the variables that make up the surplus or deficit.

In particular, the importance of nurturing and growing corporate activity that generates the tax revenues that went missing in Australia this year.

This reinforces that nothing bad comes from increased tax revenues through economic growth while keeping costs in check. The gains largely slide to the bottom without having to make wholesale structural changes that also have societal implications - key themes of the Government's economic story.

So is this a case of the tortoise and the hare?

Australia has been the hare, in many respects racing ahead, but possibly at the expense of the fundamentals. New Zealand has traditionally been a poor follower of Australia, which is largely driven by the mining boom.

The reality is both jurisdictions are now heading for elections that will signal the confidence their voters have in their approaches and those of the opposition parties. The Australian outcome now looks inevitable. In some ways therefore, Budget 2013 is only a placeholder for the Government before the big event.

In 2014, barring any significant externalities, the Government will forecast a return to sustainable surpluses, potentially even signalling the sharing of some of the future benefits to make them tangible, and present its economic case for a third term - a journey rather than a destination.

A case that was done no harm at all yesterday.


Thomas Pippos is chief executive of Deloitte.

- NZ Herald

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