Fran O'Sullivan: Time to milk sacred cows

What a great opportunity for John Key to show some bottle and tackle the sacred cows that block a major economic resurgence in New Zealand.

Risk-taking is in Key's blood. He's been a high-flying global currency trader. Unlike his predecessor he was not a university lecturer before entering politics but an all-out business player.

This is exemplified by the fact that he booked a huge profit for his masters by betting large on the New Zealand dollar when Sir Roger Douglas was given the flick as Labour's Finance Minister.

Back then he combined keen intuition with studied calculation. So, why go soft now he's got another 20 years under his belt?

Instead of shrugging off the OECD's latest prescriptions as telling Kiwis (or their Government) nothing they do not already know, Key is ideally placed to be more courageous than his predecessors and use the report to drive the essential changes needed to put the economy on a sounder competitive footing.

The report was hardly a harbinger of doom (save those words, please, for a full-on currency crisis).

But it is a much-needed reality check.

By taking some leadership and convincing the New Zealand public it needs to face up to the country's economic predicament instead of following lemming-like down the Icelandic or Irish paths, the Prime Minister will win on political points, and could save the country from the ignominy of joining the growing list of sovereign downgrades.

Key has strong salesman skills. Kiwis have already bought his frequent line that a "diet of debt" is not sustainable.

Neither Key nor his Finance Minister Bill English have been prepared to say outright that the two next rounds of personal tax cuts may have to be shelved in the upcoming May 28 Budget, and contributions to the NZ Super Fund curtailed while the Government's books are in deficit. Instead they are opting for the catch-all phrase of "fiscal consolidation".

That's fair enough because the ratings agencies will give the Government time to stake out a timeline within the Budget for getting its accounts back into surplus.

But New Zealanders are already thinking deeply about the country's predicament and are prepared to do the right thing under the circumstances. If the tax cuts have to be deferred or shelved - as many informed players now expect - most of the public will be behind the Government.

That has already come through in the latest ShapeNZ poll which indicates a majority would rather shelve the next rounds of tax cuts if it involves further borrowing.

Key is fortunate here in having a Finance Minister blessed with the most useful attribute in these circumstances - the ability to say "no". Redundant programmes will be axed and the bloated public service reined in.

But right now the Government appears too gun-shy to contemplate measures which the OECD is promoting like refocusing its tax-reform agenda as fiscal conditions permit and cutting NZ's corporate rate at least enough to match the OECD average, and shifting the tax base away from income and towards consumption and immobile factors including housing.

What the OECD has prescribed is not radical New Right theory, nor is it a neo-liberal prescription, nor is it the line-up of usual suspects, or any of the other Pavlovian responses which jump up whenever outsiders attempt to forge debate on just how New Zealand's lagging performance might be enhanced to get ourselves out of the cul de sac into which the Labour Government parked the economy.

All the Paris-based organisation has done is come up with solutions to some of New Zealand's short-medium term fiscal problems such as cutting spending, selling mature assets to reduce debt and free up capital for new investment, and increasing the revenue line.

This is bog standard stuff for New Zealand companies right now as they get their balance sheets into order to withstand the international recession. Why should it be any different for Governments if they are to match the international norms necessary to attract top-flight investment capital and secure the retention of our own best companies and talent?

So too, the debate over the ownership of non-core assets like electricity generation, the railways and banks.

On this score, Key seems concerned that National should not break its election promise not to advance privatisation in its first term in office. This pledge should not stop the Government from exploring other creative alternatives in the meantime, like issuing State-Owned Enterprise bonds and extracting capital from SOE balance sheets to either reduce the projected debt profile, or reinvest elsewhere.

It was in the initial SOE legislation after all and will be attractive to New Zealand retail investors.

On the health front - where the Government faces bigger bills to underpin the cost of treating more older people - Key seems more prepared to engage in the debate; particularly when it comes to achieving greater efficiencies.

Then there is the urgent need to focus attention on the looming long-term structural imbalances which will occur as too few taxpayers try to sustain the health and livelihoods of New Zealanders post the age of 65.

With nearly a quarter of the population offshore and not even contributing to the tax base, it is frankly barking to offer universal superannuation to all New Zealanders once they reach 65 years on the condition that they have lived here for a mere 10 years since aged 20 (five of the 10 years since reaching 50).

Given the demographic projections, it has all the makings of a full-scale tax revolt. Then there is the nonsense of the current age of superannuation entitlement. The reality is that in 1950-52, the life expectancy at birth for NZ males (who were the substantial taxpayers) was 67.2 years.

By 2002, it was 76.3 years.

The "retirement" age has not increased enough yet to keep pace with the longer life expectancy.

This is a debate that has to be had - what better time to kick it off than by raising the issue in the Budget and foreshadowing a timescale to move the superannuation age higher and introduce means testing?

Far better that Key uses his time this way than ducking recommendations that "the Government's unlikely to be accepting if it wants to last longer than one term".

Take a calculated punt instead.