Editorial: Lost surplus tarnishes Key's image

Are Bill English and John Key softening the public for failure? Photo / Mark Mitchell

‘In-the-black’ may be an artificial target, but gap that won’t close still leaves Nats with a broken promise.

Next month, we will learn whether the Government can, as promised, balance its books. After years of focus on returning the state's finances to surplus, and much lecturing of the public about why this is important politically and to foreign financiers, the signals now coming from Prime Minister John Key are not encouraging.

New Zealand might not meet the National Party's goal of returning to surplus in the financial year just gone. Hitting surplus in 2014-15 has been more than a mantra. When Labour left office, it left books predicated on a "decade of deficits". The Key administration boldly aimed to shorten the sequence of spending more than it raised each year.

Last May's budget claimed this year would end about half a billion dollars in the black. Successive re-forecasts have reduced the surplus to mere tens of millions and most lately to a deficit of $269 million.

Mr Key is softening the public for failure. Describing the surplus as "an artificial target", he used his pre-Budget speech this week to suggest it was still a possibility but would not be a problem if it was missed. He correctly observed that the public would look dimly on cuts to social services simply to meet his party's goal.

But he indulged in smoke and mirrors to make a surplus or deficit in the tens or hundreds of millions of dollars seem inconsequential.

Those totals paled in comparison with the $250 billion size of the national economy, he said. But the state's part of that total, in terms of revenue and expenditure, is more in the $65-$70 billion a year range, and that is the part the Government can influence directly to have a surplus.

But his point is telling. If a few hundred million or so of surplus is of no moment now, why has it previously been held to be such a virtue? National wanted to convince voters, as well as itself, that it was the party of fiscal rectitude. The Clark Labour Government posted surpluses regularly under Sir Michael Cullen's guidance, so much so the National Opposition goaded Labour to cut taxes and give some of the money back.

National's image will not be damaged in financial markets or with global credit agencies should the Budget post another, seventh successive deficit. The margins involved will be accepted; they are probably already built into their analysis of New Zealand's prospects. The potential reputation damage for Mr Key and Mr English will be with voters. Promises are promises, even when they are "artificial targets". The blue team claimed it was the financial manager needed to move the country out of recession and to put the books right before reducing public debt. The second and third of those priorities lie unmet.

The Government might calculate a surplus will come in any case in 2015-16, as economic growth is expected to have pushed tax revenue up by next April, and a billion dollars or more into the black was indicated as late as last year. The political pragmatists in National will bet a near miss this year will have long been forgotten and forgiven by the time of the next election, in 2017.

For now, the gap in the public finances is stubbornly unerasable - and is wiping the gloss off National's claim to be superior economic managers to Labour and the rest.