Fran O'Sullivan: Survival mission off to a good start

Finance Minister Bill English's first Budget is not an economic game-changer but the first move in a Great Survivor exercise to get New Zealand's creaky balance sheet into shape.

So far, English has succeeded.

He tossed the credit rating agencies an easy bone by canning the next two rounds of personal income tax cuts and shelving Government contributions to the NZ Super Fund for 10 years.

Standard & Poor's and Moody's Investors Services were quick to affirm that their outlook for New Zealand's sovereign debt ratings was "stable".

Tax cuts will not even come on to the agenda before the 2011 election. But tucked away in the Government's background documents is a suggestion that such a programme could be implemented as the trade-off for a switch to broadening the tax base at a later date.

But nowhere is there any evidence (yet) of the bold growth-focused policies that must be developed if more companies are to be persuaded to build their international empires from New Zealand and more talented Kiwis are to be attracted to either stay or return here to build their careers.

Few of the ideas that emerged from the Prime Minister's Job Summit in February have yet to get through the Budget process.

But NZX chief executive Mark Weldon - who chaired the PM's summit - has had a back-door win. The Super Fund will be given an extra $250 million this year with a firm direction to invest it in New Zealand companies and ventures having difficulty accessing capital.

This is not the $1 billion joint equity fund the Job Summit wanted. But it will provide vital aid and may lead to the fund taking cornerstone stakes in vulnerable firms to keep them New Zealand-controlled.

But English's most intriguing admission was that he had appointed former Treasury boss Graham Scott - and a panel of economists - to work on a new economic strategy.

This is either a shocking admission that English doesn't know what to do next, or a signal that the National Government intends to bypass the Treasury and get serious about fundamental change.

English was giving little away yesterday. He simply noted thatit was useful to be able to drawadvice from people (such as Scott)who have been through the cycles.

In reality, English doesn't have an economic growth strategy in place.

His "back to basics" approach concentrates on a raft of regulation reviews that will ultimately see the Resource Management Act substantially reformed, with changes to the telecommunications and electricity market platforms.

But unless such policies are combined with internationally competitive tax rates they are unlikely to produce a major fillip.

The Government has also dished out a fiscal stimulus boost by pouring more cash into house insulation programmes, broadband and transport. This will provide a valuable ballast to certain sectors - particularly construction - as unemployment creeps up to the projected rate of 8 per cent next year.

John Key's "decade of deficits" continues but Budget projections show gross debt will peak at 43 per cent of GDP by 2017 before declining - a trajectory that enabled the credit rating agencies to tick-box the Government as outlining a "credible fiscal strategy".

At a political level the Government's softening-up exercise was successful. Most Kiwis will buy National's rationale for dumping the personal tax cuts.

But the Government has missed the opportunity to spend more of its political capital on game-changing policies.

Business will be hoping it sticks to its guns and doesn't lose its nerve before English gets to deliver his next Budget.