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Now’s not time for spendup

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The pressure on Bill English’s budget just moved up a notch.

Delivery of his fourth budget is just under five weeks away and the finance minister (who has also been acting prime minister these past couple of weeks) is facing increased public pressure on the steadily prudent, unspectacular line the government has been following. 

Slow response
Courtesy of the random workings of the parliamentary balloting system, Labour MP Sue Moroney has vaulted into public awareness, brandishing her bill to extend paid parental leave to six months.

The bill would cost the taxpayer $150 million a year, according to Labour’s figures, although Labour leader David Shearer, in a fairly characteristic move of political maladroitness, said Labour’s own figures were probably wrong. 

As noted in this newspaper last week, the unpredictability of the move caught the government wrong-footed – it only happened because Ms Moroney’s bill won the regular members’ bill ballot – and National was very slow to respond. 

The significance of the Moroney bill’s move into public prominence is not so much about the substance of the bill itself. Partly it was simply a sign of a bored press gallery in a quiet recess week after Easter.  

The next batch of polls will tell us if that is all it was. The significance may go deeper than that, though. 

New Zealand has had a couple of years’ recession, starting in late 2007 and followed by a period of minimal economic growth. Although economists will tell you it is not a recession, it certainly feels like one for a lot of people. 

Anecdotes, the polls and especially last year’s election win tell us that by and large New Zealanders have signed up to the sound, boring and prudent notion that it is time to stop racking up debt, and that both households and the government have to go through a period of constraint. 

Real worry
But politically, the demand for “bread and circuses” by the wider public is never too far away. This is not just a factor of the MMP environment or even just a downside of democracy: the phrase “bread and circuses” comes, after all, from the ancient Rome, which was nobody’s idea of a democracy. 

The apparent public support – and it is only apparent, at this stage – for Ms Moroney’s bill suggests the government’s prudence is starting to wear a bit thin. 

If so, that is a real worry. 

The sort of financial crises that hit the country in 2007, when the first bunch of finance companies started falling over, typically take a long time to repair. 

The economic rule of thumb for a financial crisis usually means about seven years of minimal growth, allowing all concerned – businesses, households and governments – to get their balance sheets back in order. 

That seven-year pattern fits neatly, of course, with the government’s plans to get back to surplus by the end of the 2014/15 financial year. But it also requires keeping enough people on board over that time.

Mr English alluded to the sort of challenges New Zealand is going to face even if the surplus target is met. 

Both Labour and National are committed to re-start payments into the New Zealand Superannuation Fund, he noted this week. 

Risk profile
There is also the not-small matter of re-stocking the Earthquake Commission’s natural disaster fund. Before the Christchurch earthquakes, the fund hit around $8 billion, which was seen as just about enough to cover one major earthquake, but not two. 

It is going to require a lot more than $8 billion in the future: the risk profile of New Zealand is much greater and reinsurance cover is going to cost much more (and may also be lower, meaning New Zealanders will have to stump up more in premiums).

In dismissing Ms Moroney’s bill, Mr English made it clear there are other priorities, which include not only these government funds but adding, intriguingly, “and of course families may be expecting that as things have been tight for them for a while, there will be something for them,” in any surplus budgets in the future.

Large debt
That cryptic comment appears to relate to plans to increase the amount available for early childhood education, once the government books are back in the black. 

It also signals that the government is alive to the political dangers of what a previous finance minister, in a very different context, called “prudence fatigue.”

But even when the government is back into surplus, there is still a large debt to pay off; this is projected to take at least another decade before it is back to comfortable levels.

Net debt peaks at just under 30% of GDP in 2015 and it then takes almost a decade to return to prudent levels. 

Prudence, fatiguing or not, needs to be with us for some time yet.