Politicians have been making merry with the arrival of a Budget surplus this week. In May when the Budget was drawn up and the long-expected surplus proved elusive, the Prime Minister said it did not matter very much anyway. On Wednesday he was beaming and high-fiving the Finance Minister, who started talking tax cuts.
Across the aisle, opposition parties waved their wish-lists with new confidence, calling for the surplus to be spent on child poverty, more hospital operations, more pre-school education ... you name it.
At the same time, they predicted the slender surplus would disappear as suddenly as it arrived. Economic activity is not increasing at the rate it was when the surplus was generated, the world economy is more worrying, business confidence is lower, the Christchurch rebuild is having delays and dairy prices are still depressed.
Both sides are right, and wrong. The surplus is worth celebrating, even if it does not last long. But it would be wrong to give it away in tax cuts, even if it proves to be sustainable. The Opposition is equally wrong to advocate spending it too soon, for it is right in saying the economic outlook is clouded.
The surplus would be good news at any time, but particularly when the state of the world economy is worrying. A surplus is a sign that the public accounts are in a healthy position to help the country ride out a recession, if it happens.
But it is not the only sign. Public debt, which results from accumulated deficits, is even more important. Bill English reports the debt stands at about 25 per cent of the nation's output, which is healthier than many countries these days but not as healthy as it was when we last slipped into recession, just before the global financial crisis.
For that reason, Mr English should curb his talk of tax cuts. He was probably joking anyway, teasing the Opposition a little. As the custodian of the purse, Mr English has been less prone to tax-cutting talk than John Key and sometimes visibly nervous at Mr Key's propensity to promise a cut.
The Prime Minister should be content with his Government's reduction of income tax rates in 2010, especially the top rate that the previous Government had raised needlessly. A top rate of 33 per cent is reasonable and capable of surviving a change of government. A lower rate would last only until a Labour government returned.
If the surplus in the final account for the year that ended on June 30 can be sustained in the current year and projected to continue, the best use of it would be to reduce debt more quickly. The next best use would be to resume the contributions to the NZ Super Fund that the Government suspended six years ago.
The Super Fund has been performing well on its investments of the capital provided by the previous government from its Budget surpluses. It is a pool of domestic savings that reduces the country's dependence on foreign investment as well as building a buffer for future taxpayers who must pay the baby boomers' pensions.
There is no limit to the worthy social programmes that could use the surplus, but its best use is to strengthen the economy that generates the taxes that support the welfare of us all.