Editorial: Free tertiary study may trump tax cuts

When Parliament reconvenes for a new year, there is always a chance we will hear some fresh ideas from the Government, or at least a refreshed, friendly attitude from all parties in the chamber after a warm and sunny break. Neither was apparent this week. The Prime Minister's opening statement contained nothing unexpected and he and the Leader of the Opposition exchanged taunts that lacked much wit. Perhaps the signing of the Trans-Pacific Partnership last week soured the mood this year, but it is a pity the benefits of a holiday should evaporate so soon.

In past years, this Government has started with unexpected announcements - an asset sales programme, a school leadership initiative and a flag change exercise. This time, the most surprising item in John Key's speech was an indication tax cuts are still on the horizon. That was surprising because National's prospective tax cuts provide the fiscal justification for Labour's big new year proposition: free tertiary education.

If National wants to argue at next year's election that an entitlement to three years' free tertiary education is unaffordable, it cannot be offering tax cuts. If it thinks a tax cut will be more appealing to voters than relief from student fees and loans, it may be mistaken. There may be more pressing social needs for any spare revenue, but few would be as popular. National will not have forgotten the 2005 election when it was in Opposition and its promise of tax cuts was trumped by the Labour Government's suspension of interest on student loans for the period of study.

National would do better to keep the country firmly focused on the needs of the economy, which means reducing public debt before any thought of tax cuts. To a degree that is the Government's view. Its fiscal strategy, said Mr Key this week, "is to keep a tight rein on spending, focus on results from public services, start to pay down debt and look to return any excess revenue on top of this to taxpayers". But with its Budget as yet barely showing a surplus on paper and a true cash surplus not scheduled for another year or two, it is far too early to be looking to return any revenue.

And it will still be far too early at an election late next year. If by that time there is any "surplus revenue" in the budget projections to 2020, it should be used to start to pay down public debt rather sooner than the Government plans. World economic recovery remains uncertain - at best - more than seven years after the global financial crisis, when New Zealand's public debt was a good deal lower than it is now. The major economies of Europe and Japan are still struggling for growth. The United States' recovery is not convincing yet. China has passed its phase of rapid industrial expansion and our dairy farmers are feeling the effects, as is Australia's economy.

New Zealand is doing well by comparison, thanks mainly to careful, steady budgeting. It may be dull politics, but it needs to continue.

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