Fran O'Sullivan: Battle of the surpluses looms

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Roll out the popcorn for the forthcoming political clash between Bill English and John Key over how the looming Budget surpluses get spent.

Treasury's $6.7 billion Budget surplus forecast for 2019 looks heroic to some banking economists.

But from a political perspective the multi-billion dollar forecast surpluses are compelling enough for the Prime Minister to be able to hint at personal tax cuts under a fourth-term National-led Government.

The forecast surpluses are also large enough for the Finance Minister to make a compelling argument for the Government to make a big inroad into paying down debt before he lets the Prime Minister mount a raid on his surpluses to boost voting support.

At the 2014 election, English was able to curb Key's impatience to dole out tax cuts. He knows curtailing the Prime Minister's enthusiasm will be much harder next year given Key's conviction that personal tax cuts will not only deliver more cash back to taxpayers but will also lead to dynamic economic growth.

As Sir Michael Cullen found out before him, there comes a point where even the most determined Finance Minister finds it difficult to maintain internal support when their Prime Minister (and the party) believe promising goodies is the key to re-election in a knife-edge situation.

Yesterday, English took to Twitter to spruik his eighth Budget: "This is a Budget for a country that knows where it's going, from a government that knows what it's doing #nzbudget," he tweeted.

From the Finance Minister's perspective his tweet was a reasonably fair summation.

English is not given to obvious triumphalism. But putting the nation back on to a track for repeated Budget surpluses is a singular achievement which warrants a minor victory roll.

Particularly, when Finance Ministers and Treasurers from other OECD nations have struggled to get their own nations' books back into the black after the global financial crisis wrought serious damage.

There will be concerns about the sustainability of the forecast surplus track.

Like all Budgets this one is to some extent a mirage, with the usual "smoke and mirrors" exercise which makes it difficult to track real spending increases given the propensity of Finance Ministers these days to announce multi-year spending programmes.

The pre-Budget drum was that this would be an "Auckland Budget".

It was of course.

Much of the spending growth has been driven by increased net immigration - much of which has focused on Auckland - particularly when it comes to health and education.

What it did not do, however, was underwrite the cost of meeting the housing gap.

English did not spell it out directly in the Budget. But, by omission, the Budget also delivers a message to the Auckland Council that it also has to do its bit to underpin new housing and infrastructure.

Central Government's expectation is clear: If the Auckland Council does not make the necessary moves within the Unitary Plan to free up more land for housing the Government will issue directions.

Auckland Council should realise that it is not tenable to sit on valuable commercial assets and expect the taxpayer to fund more transport infrastructure without a significant contribution from NZ's biggest city.

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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