Key back to deuce before Budget

Despite Aaron Gilmore, and telling the truth about Wellington, the political advantage edged back to John Key this week.

The reasons are both economic and political.

In the 2012 calendar year, growth was a respectable 2.5%. Significantly, most of that occurred in the December quarter, when the economy grew 1.5% – the fourth fastest among countries monitored by the OECD and behind only China, Russia and Luxembourg – suggesting accelerating activity.

Data since then appears to confirm it. According to Monday’s Treasury figures, tax receipts for the nine months to the end of March were $719 million above forecast and $2.6 billion higher than for the same period in 2011/12.

Again, much of that turnaround has happened in recent months, with March tax receipts ahead of forecast by $267 million, or 5.6%, and 10.6% higher than in March 2012.

Government spending is stable, beneficiary numbers are falling and surplus will now almost certainly be achieved before the election.

In March, corporate taxes and GST revenues were up particularly significantly, but PAYE revenues were also ahead of forecast suggesting some employment growth.

Sure enough, Tuesday’s Statistics New Zealand Quarterly Employment Survey for the March quarter showed an increase in jobs, particularly in construction and health care. Wage rises, while modest, were ahead of inflation.

In December 2012, New Zealand unemployment was already low by world standards and falling, down to 6.9% compared with 7.7% in the UK, 7.8% in the US and 11.7% in the eurozone.

If unemployment has again fallen in the March quarter as measured by the sometimes temperamental Household Labour Force Survey, expected just after deadline, that would be conclusive vindication of Bill English’s economic strategy.

What’s more, he will be able to say that what has occurred is exactly what he planned.

Mission accomplished
Back in early 2009, Mr English outlined two objectives for his economic strategy: to protect the most vulnerable from the hard edge of recession and to get the economy ready for recovery.

He also said he wanted to get back to surplus, something almost impossible to imagine at the deepest point of the recession that began under Labour in early 2008, well ahead of the global financial crisis.

There is no doubt he has achieved exactly what he promised and he and Steven Joyce can now drop talk of “grumpy growth” or “jobless growth”.

On an annual basis, job numbers have been increasing since the second half of 2011. “Grumpy growth” and “jobless growth” certainly occurred through 2010 but are now behind us.

Looking ahead, consumer confidence continues to improve, building on the seasonally adjusted increase in retail sales in the December quarter.

According to the ANZ-Roy Morgan Consumer Confidence Survey, 47% of us expect to be better off in a year’s time. Perhaps worryingly, the same survey found that 62% of us think it is a good time to buy a major household item, the highest level since August 2007.

Business confidence data is a little mixed. While the ANZ survey has it down a bit, the BNZ survey says it is soaring and the NZIER survey has the strongest reading since June 2007.  The Deloitte survey of chief financial officers also suggests growing confidence.

Mr English’s glass-half-empty communication style has been useful in trying to make us save more and spend less, but he could afford a bit of a smile next Thursday on Budget Day. No government should expect to lose an election with economic data this positive.

Slow seduction
Mr Key’s political gains are subtler but his slow seduction of Winston Peters has begun with offers to work collaboratively over new legislation for the spy agencies and indications that broader dialogue with NZ First is being sought. It is a far cry from when he ruled out Mr Peters in 2008 and 2011.

Both Mr Key and Mr Peters know they need one another. Should he hold the balance of power, Mr Peters would be an uncomfortable third-wheel and office junior in a Labour/Green government. His journey back to the deputy prime ministership, perhaps the foreign minister’s job, a knighthood and a veneer of respectability is only possible with Mr Key.

For his part, Mr Key is almost certainly doomed without Mr Peters propping him up for a third term.

Both Mr Key and Mr Peters are also savvy enough to know they need to be careful in their flirtation.

The angry losers, bewildered elderly and talkback pranksters who vote for NZ First would not take kindly to seeing their hero getting close to an incumbent government. Just as in 1996 when he attacked Jim Bolger’s economic policy and in 2005 when he attacked Helen Clark’s foreign policy, he needs to maintain his image as an agent of change, however ludicrous that is given his actual record in government.

Mr Key has exactly the same problem, with private polling suggesting that perhaps as many as two-thirds of National voters would consider staying at home or changing their vote if they thought Mr Key might govern with Mr Peters.

They wouldn’t of course, or certainly not in those numbers. But Mr Key can’t afford to lose more than a few thousands votes after his narrow escape from defeat in 2011.

And so, the same pantomime that secured Mr Bolger’s third term in 1996 and Ms Clark’s in 2005 appears set to be rolled out again.

Strong economic growth gives National the chance to sit around the 44% mark, where it is polling now. Throw in 5% for Mr Peters, and Mr Key might just squeak back in again.