Fran O'Sullivan on business

Business analysis and comment from Herald columnist Fran O'Sullivan

Fran O'Sullivan: No room for Joker with this dynamic duo

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Bill English often plays Batman to John Key's Robin when they take the Budget show on the road each year. Photo / Mark Mitchell
Bill English often plays Batman to John Key's Robin when they take the Budget show on the road each year. Photo / Mark Mitchell

Bill English usually plays Batman to John Key's Robin when the pair take to the road each year to sell the Government's Budget.

Key tends to have a bit of sport at English's expense, which the latter returns through dryly undermining his boss' ebullience at the functions they separately front in different parts of the country.

But it's notable that this year both the Prime Minister and his Finance Minister were singing from the same song sheet as they calmly promoted their "prudent Budget" to the business leaders whose confidence they must retain to get the economy back on an upswing.

Key and English used virtually the same words as they told business audiences in Auckland and Christchurch that they had delivered a "very sensible Budget in very volatile times".

What's driving this rather staid approach is the need for them to get across the message that the Government will be "locked in prudence mode" for years to come.

Major trading partners like China and Australia remain relatively upbeat; but Europe is a dog and the United States is not in for a major burst of irrational exuberance any time soon.

Battening down the hatches for a fourth year is a difficult message to sell.

The problem is most New Zealanders have become so conditioned to cyclical consumption-led growth spurts (fuelled by debt) that we've forgotten what it's like to be locked into a "steady as she goes phase" for year on year - if not a decade or so.

It's human nature to want to break out after years of prudence.

Last year's Rugby World Cup provided a vital break in the down cycle.

But there is no sign that Gordon Gekko will be making his way down to our part of the woods any time soon.

Hence the painstaking approach that Key and English are adopting to ensure the message sinks in that regular crises will be part of the international environment for years to come.

In Auckland the major takeout from Key's post-Budget addresses is that the Government must get back into surplus by 2014/2015 so it can start paying down the additional $60 billion of debt it will have stacked up by then to support New Zealanders through the tough economic times.

"In the end you've got to pay the piper", is how Key put it.

Doing otherwise would simply set the nation down Greece's road.

In his sanguine fashion, English admitted getting back into surplus wasn't the be-all and end-all. "But when you've got grumpy lenders they need to know that they'll get their money back."

New Zealand needed to be "whiter than white" in debt markets because it is one of the most indebted countries in the world. But it also had to gear up to leverage the Asian growth story.

Key did not take questions at the Auckland function. But the general mood was optimistic.

Some business people later said they would like to see a step up in ambition. But there appeared to be a general consensus that the Government had done a reasonable job in difficult times.

Both Key and English will be chuffed that credit rating agency Standard and Poor's applauded the Budget as the "latest incremental step toward consolidating the Government's fiscal settings after four years of deficits" thanks to the recession and impact of the Canterbury earthquakes.

But it's also right to ask whether those "incremental" steps could or should be a lot larger.

At issue is whether the 2010 tax switch is in fact proving to be "revenue neutral".

Tax-cutters would have you believe that slashing personal income rates spurs more consumption and hence more economic growth. But many Kiwis appear to have simply banked their "cuts" and used them to pay down personal debt. English may not want to turn the microscope inwards. But surely Treasury should be probing whether the personal tax cuts will ultimately become revenue neutral - as promoted in the 2010 Budget - or whether they have led to sustained revenue leakage.

The Treasury could also usefully address the impact of axing Working for Families and mounting a campaign to persuade employers to pay higher wages and salaries instead. Businesses would squeal.

But removing this effective Government subsidy to business might do more to spur productivity improvements than other mechanisms.

This is probably a step too far for a Government which is solidly in nurse mode. But businesses do need to step up if the economy is to rebound.

English proved again that he does not like being challenged on the growth story.

His line is that considered and consistent sound decisions year after year is the way to achieve growth.

"It doesn't just come out of the sky."

Key and English have underlined confidence in the New Zealand economy.

But their next sales effort should be to build a new New Zealand story and sell that overseas to persuade Kiwis in downbeat parts of the world to come back and invest in this country's future.

- NZ Herald

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