Fran O'Sullivan: Bollard's blow tips Behive talks

Even Blind Freddie could have worked out the semaphore between the Reserve Bank's top floor and the Beehive on Friday.

Whether central banker Alan Bollard and Finance Minister Michael Cullen needed to play their wink and nod exercise so obviously we will never know.

But resorting to a "lock-up" to ensure journalists amplified Bollard's warning to coalition negotiators that expansionist fiscal policies might boost inflation may just have done the trick.

So too, Cullen's quick statement that it was his job to make sure any policy promises did not bump new spending above the $1.9 billion the previous administration had set aside for each of the next three years: "It's a warning to everybody who might be engaged in either negotiations or phantom negotiations in another building about those particular possibilities.

"Fundamentally my job is going to be to get very close to that stepped allowance encompassing whatever combination of policies emerges out of the discussions."

From a Finance Minister who had just promoted a huge fiscal expansion during the campaign in the form of making 60,000 more New Zealand families welfare beneficiaries, it all seemed a bit rich. But Bollard's pre-election warnings on this score (he also obliquely warned against National's tax cuts) were a bit too sotto voce to gain cut-through.

The welfarism dished out in the form of the Working for Families programme was part of "Labour policy" not "Government policy" as Cullen stressed during the campaign. But with news media attention focused on minor parties' successful bids, it seems to have escaped notice that Prime Minister Helen Clark in fact wrote the biggest demand into the resultant supply and confidence agreements: Labour's $1.3 billion family top-up. Once the minor parties' payoffs are added up it would appear that Cullen's fiscal headroom to do anything major - such as offer tax cuts - has evaporated.

But the quasi-coalition deal unveiled by Clark on Monday at least has the capacity to point the new Government in a more pro-business direction.

To their credit, NZ First leader Winston Peters and United Future leader Peter Dunne have extracted from the Clark/Cullen combo a pledge to review business taxation.

This stops short of an outright commitment to lower the company tax rate to 30 cents to match Australia's more competitive headline rate.

But both politicians appear confident that rates will come down following a review. This might be tempting fate given the outcome of an earlier tax review undertaken by Rob McLeod in Labour's first-term. Cullen sent the first McLeod report, which recommended sweeping changes, back to the drawing board.

But unless the economy collapses - or suffers a major seepage of corporate taxation revenue - the omens would appear to be good.

The basic agreements commit Labour, United Future and New Zealand First to review business taxation regimes with "the view of ensuring the system works to give better incentives for productivity gains and improved competitiveness with Australia".

In a TV interview on Monday evening, Dunne - now also Revenue Minister - was almost categorical that a cut in company tax would be the ultimate outcome of the review. Yesterday he was less equivocal appearing to pick up on Cullen's view that incentives need to be weighed up against rate cuts.

But Peters was more upbeat. Among his predictions: the carbon tax "is gone", the company rate would be reduced over the next term and it was even possible that the Government might implement personal tax cuts in that time.

His acute political antennae tell him that Clark and Cullen will want to "foreclose on the other side" - meaning National - by the 2008 election.

What better way to do that than to craft a good deal for the business sector and also dish out some tax cuts to bump up incomes for those workers who do not qualify for welfare top-ups.

Peters maintains that his confidential demands were never so stratospheric as "journalist spin" (and arguably also the Bollard/Cullen mantra) suggested.

What he had secured are deals estimated to cost $125 million a year over a three-year term, including superannuation, police and roading.

What's not said - yet - is that if the new Government abolished the Kyoto Agreement and instead joined the Australia/US led group of countries working on technologies to reduce emissions it could save itself $500 million on an annual basis by just wiping the carbon tax .

The Greens - who have not realised it is better to walk away from the poker table when you don't know who is getting screwed (it is you) - over-played their weak position.

The business sector - which rolled up to a command post-election performance to discuss the Green's policies - will not be dismayed that they no longer have to pretend obeisance to MPs who used to give them short shrift. The Greens extracted a commitment to boost the minimum wage from $9.50 an hour to $12 an hour by 2008. Business groups will bang on this as "inflationary". But NZ wage rates are well under those of Australia's and productivity improvements have yet to flow through from corporate coffers to workers' bottom lines.

Some new Cabinet Ministers - particularly Damien O'Conner and Clayton Cosgrove - will help to counter views that Labour is dominated by teachers and unionists.

Clark has in fact managed to refresh her Executive in a much more pro-business fashion than any pundits (including this columnist) predicted four weeks ago.