Fran O'Sullivan: Left stewing at poached policy

Moves to encourage innovation and entrepreneurship are essential to keep a "rockstar" economy rolling. Photo / AP

Labour will be huffing over families package gambit but bigger issues haven't made cut.

Finance Minister Bill English's sixth Budget has taken the wind out of Labour's electoral sails. Labour is rather miffed that English has announced a $500 million "children and families" package as the centrepiece of the pre-election Budget.

But Labour has no monopoly on social policies.

More importantly John Key is also a practiced exponent of games theory.

His opponents slag him off for making a pile in forex trading. But his skills at picking inflexion points are just as transferable to raw politics.

That's why the Prime Minister still confounds his rivals. They expect him to adopt a fixed ideological position. Not steal what they believe is theirs.

Key talks about progressive policies with nary a blush.

English's rhetoric is more restrained and managerial.

He doesn't oversell his position. But the election is not a zero sum game.

Multiple players will engage.

That's why Key and English have kept enough up their sleeves to fund new policies closer to the September 20 election.

The Budget does what business expected it to do - confirms the return to surplus ($375 million for 2014/15); unveils projections to grow to $3.5 billion in 2017/18. In much the same way householders are advised to pay off their mortgage before ramping up savings, English has reaffirmed his intention to get net debt down before investing more in the NZ Superannuation "Cullen" Fund.

Among the positive business policies are moves to encourage innovation and entrepreneurship - something NZ seriously needs to increase if the so-called "rockstar" economy's reputation is to enjoy the longevity of, say, the Rolling Stones. Loss-making startup companies will be able to "cash out" all of their tax losses from R&D spending. All businesses will be allowed tax deductibility for R&D "black hole" spending which currently is neither deductible nor able to be depreciated. Key Auckland transport projects have received a boost through a $375 million interest-free loan to the NZTA.

The most controversial (and courageous) policy is the Government's decision to temporarily cut tariffs and axe anti-dumping duties on imported building materials. This is the upshot of a determination by Government to ensure new building supply chains emerge which was revealed by the Herald's Rebuild Christchurch report.

The Budget move will be another weapon in the Government's arsenal to keep the cost of the Christchurch rebuild within projections.

The big policy challenges such as how to manage New Zealand's two-tier economy (Auckland and Christchurch versus the rest) are not tackled in this Budget. Nor are the long-term fiscal challenges posed by an ageing population addressed.

Key's optimism leads him to say future tax revenues will continue to fund the pay-as-you-go system for the oldies. As a former Treasury man, English will be more pessimistic. At some point the realist needs to sit the games theorist down for an adult chat.