KEY POINTS:
Bill English is a self-admitted conservative who may yet prove to be the type of Finance Minister who will push for big economic shifts - like proposals to make Auckland a super city - to send strong signals about the way this Government does business.
Strong on the need for a new round of micro-economic reform and productivity boosting measures.
But if the proposals threaten the Government's bottom-line, it will take considerable discipline on English's part to make sure the inevitable tensions stay creative.
Right now English has an open mind about suggestions such as corporate tax cuts to stimulate the economy or the proposals worked up by NZX CEO Mark Weldon which helped spark the upcoming prime ministerial jobs summit.'
"John [Key] in particular is always willing to look at things that are a bit less conventional, my job is to make the conventional bit work," English told me during a Beehive interview.
Asked: "What if you are asked to make the unconventional work?", English replied: "Sometimes you can, can't you ..."
The PM - who has a clear tendency to chew the fat with confidantes and throw ideas about with those he sparks off - may add to the pressure on his Finance Minister's plate as the latter tries to protect the tax base and stave off a potential credit ratings downgrade. English laughs: "He's always got 10 ideas - that's the trouble with him. Getting on those bloody planes he comes back with 10 different things. I just say we'll look at that. The occasional one you just say that's not going to work.
"But from our experience in opposition - where he was worse because he had more time - that's the process where some of our better ideas came from.
"He's good in that he's quite happy to see something kicked the shit out of - but he's also persistent about something he thinks has merit and if no one else thinks it has merit he'll stick with it ..."
It goes without saying that it is English's intention that proposals resulting from the February 27 summit will have to go through a fairly robust process. He wouldn't comment on whether any of Weldon's own published proposals pass his muster. The trick in English's book is to get as much leverage as possible for confidence and productivity without excessive cost. It is important not to try to over-manage the feedback group to give the process credibility.
Where English is focused is on leveraging Standard and Poor's warning that New Zealand faces a potential credit rating downgrade as the catalyst to increase focus on his "three Rs" programme.
The three Rs he uses to describe the stages of a three-to-five year economic process: recession, recovery and repayment. Something which has become of considerable interest both on and offshore since S&P applied a "negative outlook" to New Zealand's foreign currency rating.
The Finance Minister has not talked directly with the rating agency (yet).
Asked by this correspondent: "Can you categorically say that you won't get a negative downgrade? English was straight-forward: "I can't categorically say that."
But he expects to get engaged with S&P's analysts as he works up his debut Budget as Finance Minister (this will of necessity focus on the July 2009-June 2010 year) and looks at what programmes can, as he terms it, be "rearranged" to take some fiscal pressure off during the balance of the current 2008-2009 fiscal year.
English has not spelled out which programmes might be axed, cut back or deferred as the drive to increase Government efficiency increases.
National's tax-cutting programme is still on the agenda - seen as helping drive growth.
Government department CEOs were each issued with letters asking them to look for efficiencies at the tailend of 2008. The S&P warning has since concentrated not just the public service bosses' minds - but reportedly also those of the new Cabinet ministers.
The most English would say was: "Put it this way, we're not sitting around ... We want to be rearranging a bit between now and then [June 30]."
The timing of the Budget - which in recent years has been mid-May - is also being discussed. At issue is whether it should be brought forward so that English can outline earlier a programme that might just assuage the credit rating agencies' concerns. No decisions have been made yet..
Despite English's relative sanguinity, this will not be a simple issue given the immense uncertainty that still attaches to the economic outlook of NZ's major trading partners, forecasts on the level of domestic tax flows and quite unexpected developments like the European Union's decision to effectively subsidise EU dairy farmers.
In notes prepared for last week's special meeting of Cabinet economic ministers, the Treasury pointed to a "challenging" debt funding environment as other countries also sought to fund higher deficits and Government-guaranteed banks sought funds.
The department isolated four major risks for New Zealand:
- Households stop spending.
- Dairy (on and off farm). Fonterra is poised to lower its payout and rural debt issues could emerge.
- Bank lending freezes.
- International: commodity prices (these could fall further eroding export returns).
The Key Government has come under political pressure for failing to outline another round of fiscal stimulus in line with those the US and European nations are now injecting.
Key deflected Labour's calls at his first Beehive press conference, pointing to Treasury analysis which indicated that other countries similar to New Zealand typically had less stimulus in train already than New Zealand did.
In any event adding a new wave of debt at a time when Government coffers have to be readied to cope with an escalation in National Super costs (estimated to go up 40 per cent in seven-eight years) will not be an easy task. Any fiscal stimulus has to be well spent "yielding assets or efficiencies that you are going to be able to repay".
The other critical factor is the need to try to protect Kiwis' standard of living over the next three to five years. "If we go off the rails and end up with a downgrade - you can end up with a much lower exchange rate and impoverishing well - cutting people's standard of living quite easily by 10-15 per cent."
Getting a credible plan together for repaying the debt is no simple matter. In the short month since the Treasury posted its December economic and fiscal update, the international outlook has worsened so much that officials have warned their forecast of 1.2 per cent GDP growth this year has evaporated. At best the NZ economy will flatline. S&P is attaching a high weight to the Government's medium-term programme
to address the fiscal deterioration which on current projections will result in the Budget deficit widening to over 3 per cent of GDP in 2011.
New Zealand is vulnerable. If the Government is to defend a reasonable purchasing power it has to tread carefully because, as English puts it: "We are at the outer end of the total indebtedness among developed countries."
The Treasury will be beefed up. The previous Government's mantra of economic transformation and sustainability is out. What's in is a refocus on competitiveness and productivity.
