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May 23, 2011 | by  | in Opinion |
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Politics With Paul – Moderation Nation

Paul Holmes summed it up best in a recent column for the New Zealand Herald: “I have to confess something no current affairs man should ever admit to. I can recall no Budget more boring to anticipate than that coming next week.” And, let’s face it; this is exactly what the National Government wants, (and needs) in facing a $16 billion deficit in an election year—something forgettable, with little opportunity for criticism from the opposition benches.

Of course at this point I haven’t seen the Budget. Deadlines dictate that I can’t. However, despite the fact that everything will have been clarified by the time this magazine is sitting in baskets around Victoria’s campuses, I do think it is safe to say that it’s unlikely to have been anything radical.

While there are indications that some on his front bench may lean further to the right, Key is no radical. He’s a centre-right man through and through, and to expect anything extreme from this Government is delusional. This is especially the case when ACT are too busy trying to reform into something coherent to concern themselves with trying to apply the radical neoliberal pen to this Budget’s pages.

It can (and should) be argued that in facing a record deficit, the Government needed to produce a Budget that puts in place recognisable incentives for savings and investment to help improve the competitiveness of the export sector, while reducing the national debt. Two Budgets’ experience tells us that this won’t happen.

I am by no means advocating the kind of extremism the ACT-pact would like to see undertaken. If implemented in its entirety, the recommendations in Dr Brash’s 2025 Taskforce would likely destroy this country. But, by the same token, the piecemeal nature of Key Government Budgets continue to be similarly ineffective, although significantly more palatable and less dangerous.

Notably, Budget 2011’s delivery has been as tried and true as the Government’s economic policy over the past three years. Key started with the ‘doom and gloom’, confirming that the KiwiSaver Member Tax Credit was up for cuts. On top of that it was made abundantly clear that the shears were out for Working For Families and the student-loan scheme as well.

By taking the edge off the negatives through some early drip-feeding, Key likes to leave the ‘good stuff’ until Budget day in a bid to effectively take the wind out of the opposition’s sails. We saw this last year with the early indications that a GST rise was on the cards. Then, of course, the full scale of the tax-switch was clarified on Budget day with the Government lowering income taxes to offset the rise in GST (with differing levels of satisfaction depending on one’s tax bracket). This move essentially negated the negative impact of the rise in GST on National’s political capital.

This year, the swing toward the positive started well before Budget day too, with Key and friends indicating that the Budget would forecast strong growth in both wages and jobs over the next two years.

Moreover, economists at ANZ helped out, predicting that on the back of strong commodity prices and with a boost from the Canterbury rebuild, New Zealand could return to surplus within three years.

These predictions have been questioned though, most critically by Bernard Hickey, who points to the discrepancies in economic forecasting from 2008. “In May 2008 Treasury forecast growth rates for the next three years of 1.5%, 2.3% and 3.2%. Instead we got -1.1%, -0.4% and -0.1%.” Hickey doesn’t lay the blame solely at Treasury’s feet either, arguing that there has been a failure in economic forecasting in general in New Zealand.

To be sure, the Canterbury earthquakes have a lot to answer for in these growth figures, but it’s not the earthquakes alone constraining growth and Hickey definitely has a point when he outlines, “that’s why we should all take this Thursday’s growth forecasts and John Key’s smiling confidence with a grain of salt.”

Of course, there’s an election in November, and this kind of Budget is likely to deliver National at least one more term in Government. What’s dubious is whether it will actually deliver the forecasted and (much-needed) economic growth

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