After two years, signs of strategy

Phil Goff elevates David Parker, Grant Robertson and others and demotes Ruth Dyson and Parekura Horomia. John Key discovers debt.

Both have an aura of strategy — just before Parliament’s opening tomorrow plunges MPs into back-biting, points-scoring and a torrent of well-meaning bills (43 to come from Simon Power alone).

Goff’s shadow cabinet reshuffle is strategic in that it points in the direction of a fresher, younger Labour team next term and points some older hands toward the exit. It was about as bold as he could realistically be.

More on Labour in a future column. For now I note a senior National minister’s praise to me recently of Parker, now up from No 10 to No 4, and note that Robertson, zoomed to No 12, is the best performing of the 2008 intake and has traces of star quality.

Tomorrow the focus will be on another star-quality fast-riser: Key. His speech tomorrow and the budget in May will plot much of the course his government will follow in a second term (numbers permitting). And that course is beginning to acquire a strategic dimension.

Take his two big recent announcements.

Setting the election date now has a short-term tactical point — an election before the rugby world cup amounts to a vote of no confidence in the All Blacks — but also a longer-term logic of an eventual move to a fixed election date (for all that Key tied it to the world cup’s special circumstances). The inner cabinet has divined that voters disapprove of manipulation of the date. And, of course, playing monarch with election dates is at odds with modern democratic principles.

Setting the date now also meshes with the generally sensible, consensus-seeking way Power and select committee chair Amy Adams (a front-running candidate for to be a minister post-November), have handled the electoral legislation this term. Contrast Labour’s high-handed electoral finance law of 2007.

The other announcement, of state-owned enterprise (SOE) selldowns (expect 49 per cent, though possibly in tranches) is an about-face for Key but also marks the beginnings of a more strategic economic policy.

The about-face is Key’s discovery of debt. In 2008 he rationalised National’s policy not to sell down SOEs (which he had championed until early 2005) as not needed because there was no debt problem.

Actually, there was an horrendous debt problem. Net international liabilities — the excess of debt to foreigners over New Zealanders’ assets offshore — were then around 90 per cent of GDP. The figure has eased to 85 per cent, a level Key now (correctly) thinks poses serious risks.

The big generator of this Greece-Ireland-Iceland-Portugal level of debt has been household debt. That has now fallen a little but is still three times the early-1990s level. We may not be teetering on the edge of a cliff, as savings working group chair Kerry McDonald dramatised it in the overview to its report last week. But the party is over.

A number of one-off factors will conspire to make this year feel OK, if there is no new international shock. But getting the economy solidly based will take a decade.

This is not an argument about the budget, though it shows up there. It is about how to earn our way. For 40 years we did not, culminating in a bubble economy from 2002 — what Bill English has taken to calling “pinko-economics”. We still don’t.

Getting to equilibrium requires a massive shift from consumption to exports: start with a $5 billion lift in savings just to hold net liabilities at 85 per cent. That requires both a mindset shift and an interlocking set of policies: tax (more to do yet), savings (some initial ideas from the working group), more rigorous asset funding and management (the December investment statement and the SOE selldowns), tighter management and trimming of welfare rolls (the working group reports in two weeks) and maybe a bit more support for innovation.

At least that is the government’s current strategic mix. A major challenge will land soon in the form of the much-delayed report by Chief Scientific Adviser Sir Peter Gluckman’s group of social scientists, fresh off the back of high-level international academic backing for the Dunedin longitudinal study’s findings that much teenage failure and crime stems from fixable bad starts to life.

The Gluckman report will make 10 or 12 major and many detailed recommendations: an expensive programme but ultimately a strategic economic investment.

Key can’t stretch that far yet. But that he, with English pushing, has taken on the SOE selldown bogey to get a longer-term return suggests he intends his second term to have purpose and figures that purpose requires strategy not ad hoc tactics, longer-sighted policy not myopic poll-watching. In fact, to look purposeful, strategic and a capable economic manager is shaping as his election campaign theme.

It is too early to tell if Key really has gone strategic. But the past few months look like a turning point. Look again this time next year.