The government sails into its Budget on Thursday with a near-sublime confidence.
That is about to fade. The astonishing congruence of rain, prices and a low dollar has reversed and SARS, an electricity shortage and persistent sogginess in the world economy have darkened the future.
So Michael Cullen has told ministers to hold tight for another year. He and the Prime Minister (both fiscal dries) want to be sure the surpluses are sustainable before spending them.
Next year’s Budget has become a focal point in the life of this government: a demonstration that it is a real Labour-centred administration. There are planned (as I outlined yesterday in the Business Herald) big changes in the benefit system and working-family tax credit support.
Budget 2004 is intended to be proof that Labour governments “are not put into office to rack up record surpluses”. Nor, of course, to give back surpluses in tax cuts, especially cuts from which companies and the well-off benefit.
That is now a sharp difference between Labour and National (and, of course ACT). It is also a difference, though not yet a critical one, between Labour and its United Future ally, which wants company tax cut.
In fact, this is a tax-raising government, as pensioner sherry drinkers found last week.
Just as he did with a cigarette tax rise in the first term, Cullen extracted from the drama of Budget day a bill that once would have been passed on Budget night. Nowadays most new spending is also announced in advance to maximise good publicity and not detract attention from the intended Budget theme.
You have been warned. Henceforth quake in your shoes about two weeks from Budget day.
Now look at what the government did last week. It imposed a teen-alcohol tax which the weight of non-government opinion suggests is unlikely to achieve its objective (unless that objective was in reality to raise the tax take).
Those who know history will recall the second Labour government’s “Black Budget” in 1958, which went a long way to losing it office in 1960 and denying it office for 10 years more. To fund an income tax rebate coinciding with introducing PAYE, it taxed petrol, tobacco and booze. This government has over time done the same.
These taxes, being flat taxes, hit Labour’s core voters hardest. Middle-class liberals defend cigarette and alcohol taxes on health grounds. It is doubtful working-class voters see them the same way.
For the moment, this does not matter. The polls have been consistently congratulatory, even adulatory. Clark’s ratings still glow. Labour’s lead over National is of America’s Cup dimensions.
And there is the 2004 Budget to come.
But there have been stumbles: leaky homes, the offence to the United States which impaled the Prime Minister in Parliament, the electricity fiasco. As the government ages there will be more. Less and less often will it credibly be able to blame pre-1999 National governments.
And now the economy is slowing.
If all that happens is a drop to around 2.5 per cent GDP growth, as most economists think, and if then the world economy picks itself up, and picks us up with it, the government should cruise into the next election in September 2005.
But if the world economy doesn’t pick up on cue — and it is already at least a year late — and if SARS knocks another point or two off, then what? That is Cullen’s private fear.
Stir in a slow recovery in the National party (if it can give up leadership diversions). Flanked by ACT’s vigour, jabs from New Zealand First and shards of independence from United Future, it might now start to make headway.
The past nine rosy months have not provided propitious conditions for switches in voter allegiance, nor for rebuilding National. But as the economy loses buoyancy, the political terrain will alter. Then National’s mettle as an opposition will be put to a truer test.
And so, too, will Labour’s mettle as a government be put to the test, the more so if the slowdown is harsh. For this week, though, Cullen and Co will bask like lizards in the afternoon sun.
* Some Nationalists have objected to my excoriation last week of its holding policy debates in secret at its regional conferences. This is an irony: National used to scorn Labour for secret debates. But, more important, there is a core democratic basis for concern. Political parties claim the public’s votes to do the public’s business. They take public funds for election campaigning. That makes them in a strong sense public bodies, not private clubs, and logically accountable to the public — the more so since both Labour after 1984 and National after 1990 gravely betrayed public expectations.
The Greens have closed part of their conference this Queen’s Birthday weekend but that is a strategy session, secrecy about which is arguably defensible. ACT discussed even some of its research publicly at its conference in March. Labour closed the whole of its Wellington regional conference but its others have been open.