Fran O'Sullivan: Key thinks cut, but English says save

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While PM muses about trimming tax, Finance Minister has other ideas.
Key's is a bigger game. English's priorities are different. Photo / Mark Mitchell
Key's is a bigger game. English's priorities are different. Photo / Mark Mitchell

Was John Key's brain fart on the tax front an involuntary exercise or was it calculated?

Talking up $3 billion of tax cuts within days of Bill English ruling out tax cuts in next week's Budget has introduced a discordant note ahead of the Finance Minister's annual day in the limelight.

Whether it was involuntary or calculated, Key's outburst has created a political problem. At its most basic, it raises the question of whether the Prime Minister and his Finance Minister are truly on the same page when it comes to fiscal priorities.

Key is clearly focused on getting a fourth term. When he finally leaves office (assuming National wins the next election) he will be the Asia-Pacific's elder statesman. A politician who has enjoyed considerable access to key leaders like Barack Obama.

He has enmeshed himself in the various economic integrations taking place in the Asia-Pacific region, gone to the Nuclear Security Summit and the UN, and now chairs the International Democratic Union - a grouping of centre-right parties.

His Rolodex is studded with just as many high-level contacts as Helen Clark had at a similar stage of her prime ministership.

He is not going to hang around at his Parnell pile taking up local directorships when he leaves politics.

His is a bigger game.

English's priorities are different.

He is focused on delivering a good Budget next week and building a platform for subsequent exercises. If he leaves politics with NZ's books in good shape, a substantial amount of debt paid off and significant reforms bedded down right across government, he will go down in history as one of our best Finance Ministers.

Just how National gets to a fourth term is where the pressure is coming on - and some tension, as Key's tax blurt reveals.

Key spends an enormous amount of his time on political calculus.

Pollster David Farrar's team is continuously probing the public sentiment on current issues. This greatly informs Key's rhetoric.

Just a few weeks back, the Prime Minister was saying informally - with an obvious hint of personal surprise - that Farrar's polling indicated tax cuts were not a priority with the public.

Thus English's subsequent comments that - while cuts were not "off the table" altogether, no provision had been made for them in the 2016 Budget - were made with a reasonable degree of certainty over the issues that did matter to the public.

The Budget rhetoric is expected to address some of those issues within the context of a growing economy. Strong net migration has not only pushed up house prices, making many Aucklanders wealthy. It has also created demand for more health and education services and more investment in Auckland infrastructure.

English has been painted as a fiscal conservative.

The truth is, while he has adroitly managed the nation's finances, a good deal of New Zealand's current standard of living is underwritten by debt.

This is the upshot of the classic pump-priming exercise that the Key Government resorted to after the global financial crisis.

While English deserves considerable credit for managing the nation's books back into the black, the debt has to be reduced.

English is predicting multi-billion budget surpluses into the future.

But the responsible move would be to put a great deal of that towards reducing debt and resuming contributions to the NZ Super Fund.

There is a reason for this, as English well knows. At the end of 2010 - just months after the September earthquake in Canterbury - English delivered a sombre warning: "We've got to be in a position where we can handle another recession and another earthquake and frankly we won't be there until 2020".

There has been little to suggest that the fundamentals behind that warning have changed.

Surging immigration has created the need for more house and infrastructure construction in Auckland. That is helping keep the economy buoyant, as is increased tourism.

But it's not paying off the debt. Nor it is tucking away sufficient funds to underwrite the costs of another major earthquake recovery exercise, and resume investing into the Super Fund to ensure the "silver tsunami" doesn't beggar succeeding generations.

English once famously remarked the difference between the pair was that he just "grinded away" while "John bounced from cloud to cloud". But the pairing of Key and English is the major success story of this National-led Government. This philosophical difference on tax could well be the first signs of tension between the pair.

Debate on this article is now closed.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

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