John Armstrong: Up to Key to prove Bollard is wrong

Alan Bollard. Photo / Mark Mitchell

It isn't every day that the governor of the country's central bank publicly scotches a fundamental plank of the ruling party's economic agenda as not achievable.

But that is what Alan Bollard did on TVNZ's Q&A programme last Sunday.

The Reserve Bank Governor's view that New Zealand cannot close the income gap with Australia by 2025 - a goal which underpins the Government's economic policy formation - was an extraordinary statement from someone who usually moves with extreme caution and an acute awareness of the politically sensitive. Not surprisingly, his remarks were welcomed by the Beehive with about as much enthusiasm as another speech by Hone Harawira on race relations.

And not solely because Bollard poured cold water on National meeting its long-term objective. It was inevitable someone with his authority would at some point say it was time to end the pretence of income and wealth parity with Australia.

At times, National itself has veered towards redefining income parity more as an "aspirational " goal, rather than a realistic one.

Bollard's musings, however, came little more than 48 hours before the Prime Minister tables a formal statement in Parliament today outlining how National intends to make the "step change" in New Zealand's economic performance to meet the 2025 deadline.

Bollard's credibility has made it much harder for John Key to sound convincing in insisting such a goal is realistic. Much to Labour's delight, Bollard is the party pooper who has taken the fizz out of Key's big day.

National made much of achieving income parity with Australia during the 2008 election campaign as it tugged at the emotions of parents fearful their offspring will flee across the Tasman and farther afield for better incomes and opportunity - and not return.

Bollard - probably unintentionally - has blasted a rather big hole in that strategy as a vote-winner for National. He has strayed close to the boundary of what is acceptable in terms of political interference. But he has not crossed it. He was simply voicing an opinion.

Bollard's intervention may be somewhat embarrassing for National. But though he has ruled out National's goal as being unattainable, that does not make it any less laudable. There is no argument about the need to lift New Zealand's economic performance. The argument is over how to do it.

In a fashion, Bollard has thrown down the gauntlet to the Government.

If the contents of today's statement by the Prime Minister to Parliament are radical in flagging things like a significant rise in GST, a big cut in company tax and a realignment of the top personal tax rate with the rate paid by trusts, it will go some way to rebutting Bollard. Likewise, the introduction of a land tax.

However, if the Government merely restricts itself to relatively minor things like abolishing tax write-offs for landlords, Bollard will have been right on the mark. He will have highlighted the gap between Government rhetoric and actual delivery. And that will be his real crime as far as the Beehive is concerned.