Thinking past Thursday's small-surplus budget

Bill English will declare a budget surplus on Thursday. David Parker will declare that to have been done by smoke and mirrors. Who is right? Does it matter long term?

There will be a bit of creative accounting and forecasting, a nudge here and there, a spending or ACC or state-owned enterprise dividend forecast adjustment to squeeze out a small operating surplus.

So Parker will be right, short-term.

But the creativity will be minor by comparison with other countries and with pre-1990s history here. And whether there is a small surplus or a small deficit matters only in political rhetoric. The English trajectory is toward rising future surpluses.

So English will be right, short-term.

There will be room post-2014 to cut debt or ease spending constraints where they have got too tight (hospital deficits can be lived with in an election year but not forever) or do a bit of investment spending (science has been on a diet) or ease taxes at the margin or resume pre-funding national superannuation. Budgets should stop constraining the economy, as they have in recent years.

Parker looks back past 2008 to say Labour ran nine surpluses and Sir Michael Cullen’s budgeting gave English a far better starting position in 2009 than nearly all his developed-economy counterparts. English will counter, if he bothers, that Cullen put his foot on the accelerator after 2005. Both will be right.

But on the far side of Thursday’s budget and the legislation to be rammed through Parliament Thursday-Saturday there is a far bigger debate to be had on economic theory and policy. That debate is now under way overseas.

Parker grasps that since the global financial crisis (GFC), the market-first 1980s-2000s orthodoxies are no longer immutable doctrine. English has yet to budge far from the doctrine and may not because he has signalled, by going on the list for the election, that he has only one term left as an MP. (The Treasury is less doctrinal than it used to be but that is work in progress.)

By contrast, Parker has been inquiring and inventive. (And offbeat — I shall leave his odd KiwiSaver monetary policy tool for a future column.)

But Labour’s risk remains the pull of the past, that, as some of its current policy indicates, it sees the 2010s social and income-inequality stresses as caused predominantly by the 1980s-2000s orthodoxies and retreats to comforting pre-1980s doctrines instead of reaching for new responses.

The 2010s are not the 1970s or the 1930s. Much of the stress is generated by a new and intense level of global interconnectedness and interdependency, coupled with technologies that are radically changing work. Younger generations sense that. Their different worldviews, lifestyle assumptions and expectations require modern policy responses.

This is where Grant Robertson (42) comes in.

Robertson’s elevation to economic development was by far the most important in David Cunliffe’s portfolio reshuffle last week (the extent of which, by the way, risked leaving Labour appearing still in transition close to an election when it needs to look as if it is arriving somewhere).

Economic development is a more important portfolio than finance, given Labour’s promise of “active” government. Share Jones did very little foundation policy work, apart from a bit on forestry. Robertson, whose job was (and still is) “jobs” has very little time to get foundations laid and credible policy built on them before the election.

There is one glimmer. In late April he went to a centre-left conference in Amsterdam where a wide range of contributors kicked around ideas for economic analysis and policy which are relevant to 2010s conditions and not nostalgia for a long-gone golden age of social democracy.

The target, as the introduction to a book summarising those contributions put it, is the “new insecure”, the “75 per cent of our society who are neither in the 5 per cent elite that in income terms is racing ahead nor in the 20 per cent who are poor and often marginalised”. The connection social democratic parties, including Labour, have with these middling voters has long been tenuous. In Europe populist parties, nourished on social stress and anxiety, are filling the gap.

The analysis by most of the book’s contributors, which include new rock-star economist Thomas Piketty, responds to 2010s conditions and marks a clear departure from the cul-de-sac “third way” adaptation of old social democracy to market-first orthodoxies.

Robertson’s opportunity is to inject that thinking here and start to make Labour relevant, not in the context of Thursday’s budget but by laying the groundwork for a far-reaching post-election reshaping of economic and social policy (and incidentally, by doing the rounds of regions, business and unions, possibly strengthening a future claim to be leader).

This is a generational matter, with high political stakes for the 2020s. The budget argument is a here-and-now political matter decided on September 20.

• The book referred to above is “Making Progressive Politics Work”, publisher Policy Network, Third Floor, 11 Tufton Street, London SW1P 3QB. It is available as a PDF.