Fran O'Sullivan: It's time to show your political courage, Bill

Bill English (left) and John Key need to put New Zealand on a new path to prosperity. Photo / Doug Sherring

When I sat down to interview new Finance Minister Bill English in February 2009, he was deeply focused on New Zealand's vulnerability. Standard and Poor's had just warned the country faced a potential credit rating downgrade if the Government didn't get a tight grip on its finances.

New Zealand "was at the outer end of the total indebtedness among developed countries", warned English.

Nearly two years on and once again Standard and Poor's are knocking at our door, this time slapping on a "negative outlook" for New Zealand's credit rating.

When the S&P guys rode into town first time round on this Government's watch, English - who was for a brief period Treasurer in Jenny Shipley's government - had been just weeks into his job.

The Global Financial Crisis had many over-indebted Western nations in its thrall. But even before the crisis exploded this country was in recession.

National - like Labour - had gone into the 2008 election promising far too much.

In particular, a tax cuts package which just wasn't sustainable when the Government's accounts were bleeding red ink.

Two years later that ink has turned into a torrent.

The Government now sports a cash deficit of $15 billion for the 2010/2011 year.

Credit ratings agencies don't like surprises. So it is a fair bet the agency's analysts would have got a heads-up on where the numbers were trending. It's also a fair bet the S&P warning would have been welcomed by English.

Not obviously of course.

No Treasurer or Finance Minister likes to be reminded their Budget projections were far too rosy.

But while English (and John Key) are again warning the NZ's indebtedness is at the outer margins of acceptability you can be sure there will also be a quiet smile.

In effect what S&P have done is provided English and his Treasury team with e useful political cover to launch major new economic reforms.

While Key plays his central role as the Government's prime cheerleader - English's job is to get major changes through that will (if performed adroitly) set this economy on a more sustainable path for the longer term.

The May Budget's tax switch is a case in point with is clear incentives for Kiwis to earn more, save more, spend less. Unfortunately for the Government's accounts, this meant expectations the tax cuts would provide a major fiscal stimulus to the economy were dashed. But it is notable the switch - which included ramping up GST to 15 per cent - went through without a public backlash.

There has also been a significant switch on the welfare front where beneficiaries are now in no doubt the Government regards benefits as simply a temporary measure designed to help people through a vulnerable period. English has made it clear he won't touch big ticket items like interest-free student loans, Working for Families and national superannuation - three major expenditure items that are not economically sustainable.

But he knows only too well on the current figures there is no fat left in the country's finances to cope with another recessions or major disaster like the Canterbury earthquake.

Right now his response is to step up the Government's borrowing programme and liquidate some reserves.

Again this is not sustainable.

English has some options.

He could clearly flick some assets - particularly property such as housing or defence assets.

He could also let the private sector play a larger role in contributing capital towards infrastructure projects.

He could also cut KiwiSaver benefits and simply make it compulsory. And he could have a big go at welfare.

All of this will take political courage which English - in his own patient way - has in spades. But it also requires the chief cheerleader - and his Cabinet and caucus colleagues - to get out and sell the new era.

If English can pull off the next major switch - and put New Zealand on the path to true prosperity - he will be the outstanding politician of 2011. No pressure.