Bill English has changed gear. The tenor of his Budget yesterday has moved from the hard grind of recovery to the cruise gear of normal economic growth, albeit lower than the heights we previously enjoyed. The change is welcome if it gives business a similar outlook but the road ahead does not appear quite as smooth as the Finance Minister would have us believe.
He notes the economy grew 3 per cent last year, "almost the same as Australia and higher than almost every other developed country". But the Treasury forecasts an average of just 2.5 per cent growth over the next five years as farms rebuild their stock following the recent drought and the dollar remains high in relation to currencies of countries that are still living on monetary stimulants.
A projected fall in unemployment to 5.2 per cent by 2017 depends, yet again, on the Christchurch rebuild. Estimates of its total cost have risen to $40 billion, of which the Government will bear $15 billion. Despite that, Mr English expects to budget for a surplus next year.
If he can, it will be a considerable achievement. The Treasury projected 10 years of deficits and rising debt when the Government came to power in the global financial crisis. That was before the Canterbury earthquakes. To have brought the Budget to this point is a considerable achievement in spending control, reducing the state from 35 per cent of the country's economic activity two years ago to a projected 31 per cent next year.
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With a surplus in sight, Mr English has warned the grip will not be relaxed. He reinforced that message in the Budget by announcing that contributions to the "Cullen fund" for national superannuation will not now resume until he reaches his net debt reduction target in 2020/21. Need the fund wait so long?
Rising debt did not stop Mr English budgeting yesterday for $5.1 billion in new programmes over the next five years, even if some of the money is diverted from present purposes. Another $1.5 billion will come from the floats of Mighty River Power and, later this year, Meridian Energy. The beneficiaries will include rebuilt Christchurch hospitals and tertiary education services in the city, along with irrigation schemes, KiwiRail and schools elsewhere.
There is also an extra $7 million in the Budget for Inland Revenue to enforce tax on property bought purely for capital gains. The outlay is expected to bring an extra $45 million of revenue, which shows what a greater effort might achieve.
The pursuit of capital gain tax is not, however, the Government's answer to resurgent house prices that keep first homes out of reach of many and threaten to poison the economy again. The Budget's hopeful solutions are to hasten house construction consents under "accords" with councils, and allow the Reserve Bank to impose higher capital requirements on banks to dampen the market if necessary.
The latter might help the economy but it would be harder for low-income earners to borrow. They might also be given a low- or no-interest loan scheme for a trial. Housing for the most hard-pressed families will receive an extra $100 million for insulating another 46,000 homes. Few programmes are more necessary or welcome at the approach of winter.
But ultimately, public welfare is always best served by an economy in which business has the confidence to invest for expansion and more employment.
The Budget tells the country it is over the hump of recession and earthquakes. The road ahead may be flat and the world conditions still uncertain but there is only so long hard times can last. It's time to step on the gas.