No lolly scramble in May’s Budget. That was John Key’s message last week and will be Bill English’s next week. Only some wholesome nuts to nourish GDP growth and some pacifiers for the voracious sickness industry. Key’s nut last week was more trade support.
Contrast Helen Clark’s interest-free student loans in 2005, which turned enough middle class students and parents to give her a third term.
Clark had two problems. Don Brash had rewired the National vote. And the house and credit boom was generating unexpectedly whopping tax surpluses Brash wanted to turn into tax cuts. So when the Treasury told her the boom reflected in part a structural change in the economy, she took that to imply room for some social democratic spending.
Michael Cullen did keep some of the boom loot out of colleagues’ hands by siphoning tax cash into his Superannuation Fund.
Key and English do not have Clark’s problems. David Shearer and David Cunliffe have not rewired the Labour vote. The economy is going nicely and credit is climbing but there is no tax-take tsunami and the cow bonanza does not amount to structural change.
So the Budget tenor will be restraint. That matches households’ caution. Strong majorities tell pollsters the country is on the right track and they expect better times ahead but there is wariness, not euphoria.
That’s for this coming year. The more important part of Key’s message last week was his talk of a “rainy day”: that some cash needs to be put away so the government — and the country — can ride through bad times if something goes wrong in China or the global economy or something goes bad in global politics or there is a natural disaster here.
Earlier last week at his Monday press conference Key even mused about resuming contributions to Cullen’s Superannuation Fund, suspended in 2009. The criterion for that hitherto has been that government net debt goes below 20 per cent of GDP (projected in December for 2019-20). The word now is that it might be earlier, though initially at less than Cullen’s near-2 per cent of GDP.
Importantly, stashing cash there is not a simple buffer for hard times. Money can be withdrawn from the Cullen fund only to fund national superannuation in the 2020s when retiring baby-boomers turn pension-boomers.
By then KiwiSaver funds will have swelled significantly in households’ wealth calculations. And a post-Key government will have legislated a rise in the pension qualifying age.
These measures go way beyond Key’s fiscal “rainy day” prudence.
At one level they are a way to avoid the fiscal trap Australia is in since its mining bonanza cooled, a trap a cooling cow or future oil bonanza could drop us in. Norway avoided that trap by siphoning off some of its oil boom. Some ministers have given that some thought but there is no big oil yet.
The second level of these measures is investment — by individuals or by the government. And investment implies a future dividend.
Far-fetched? Arguably the Key-English cabinet’s most important policy initiative has been to do actuarial calculations of the cost of not correcting something that has long-term consequences — such as a teenager going on the dole and staying there at mounting fiscal cost — and then calculating the return on an upfront investment that obviates that.
The investment approach has so far been applied narrowly to aspects of social welfare. Expect wider application in a third term and maybe a pointer or two to that in the Budget.
An obvious candidate in due course is education, to upgrade teaching into a profession demanding high performance from its members for which they get rewarded well and generate far more work-capable young adults who pay taxes and don’t park on the dole or in prison.
This is an emerging Key government theme, veiled by Hekia Parata’s media missteps. It might turn out to be the defining policy shift of a third term, one which would have broad conceptual (though not detailed) support from Labour and other parties.
Investing in education is, in a sense, the same as investing in roads and ultra-fast broadband. Education is infrastructure: societal infrastructure, generating more people capable of more; and economic infrastructure, providing a workforce capable of higher productive capacity.
This takes us far beyond the May Budget to somewhere near the Treasury’s long-term fiscal work. The Key government has, for example, not started to think long-term on health funding, promotion and services allocation, adaptation to climate change impacts and adjustment to radically different cultures at home and in offshore markets.
Some day some government will have to address these and other transgenerational issues. The Treasury’s long-term fiscal message was that the sooner we start, the less disruptive and the more generationally equitable the change.
Still, the rainy day dimension of the May Budget does point us a short distance down that track. Nuts are better for longterm health than lollies.