The National Party and its leader like to paint themselves as running a government that is moderate and pragmatic.

So receiving accolades and endorsements from the likes of the right-leaning think tank, the New Zealand Initiative, will be welcomed by John Key and his colleagues with very mixed feelings.

The plaudits are for National's intention to fund some of the Government's health and social programmes through private investors purchasing "social bonds" which will pay a rate of return over and above the initial investment if the providers of those programmes meet measurable targets.

The policy is a further element in National's wider and radical overhaul of the provision and delivery of social services which seeks to end the state's long-held monopoly.


The revamp - a further example is National's sell-down of state housing - has been driven by Finance Minister Bill English, who, as a backbench MP at the time, personally experienced National's failure to enact such reform when in power in the 1990s.

Back in power, English has sought to achieve the same end by different means, namely through incremental, slow-paced changes which are introduced with little fanfare and are not trumpeted as being part of a wider strategy.

English's caution is evident in the fact that development of the policy covering the introduction of social bonds has been in gestation for at least two years and has only reached the pilot stage in the form of a programme delivering employment services to people with mental health conditions.

National's nervousness is understandable. That goes beyond finding itself on the wrong side of arguments about privatisation by stealth.

National's critics will seize on claims made by the New Zealand Initiative on the purported benefits of the policy as evidence of National 's real agenda - namely that social bonds have the potential to save taxpayers money by using private funding ahead of state funding; that the model shifts the financial risks of funding social services to the private sector.

According to Labour, the introduction of social bonds will result in governments offloading their social service responsibilities on to private funders and providers, who will carry the can when things go wrong.

National's problem is that it appears to lack an overseas success story which it can wave around as evidence the policy will work in the way National says it will - rather than in the less-than-satisfactory fashion its opponents are predicting.